The Role of Financial Factors in the Business Cycle and the Transmission of Monetary Policy in Korea (in Korean)

Byoung Ho Bae ()
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Byoung Ho Bae: The Bank of Korea

No 2013-30, Working Papers from Economic Research Institute, Bank of Korea

Abstract: In this paper, I study the role of financial factors on the business cycle by using an estimated New Keynesian small open economy model with financial friction. The main finding is that the addition of financial channels and frictions into the model enhances the model’s predictability compared to a baseline model without financial friction. Second, business cycle analysis shows that the financial sector as well as external sector turns out to be a major source of the fluctuations of the business cycle in Korea. Third, a monetary policy rule that considers the deviations of the exchange rate and asset prices can stabilize the propagation of a negative shock, which also mitigate the loss of welfare.

Keywords: DSGE; Financial Friction; Business Cycle; Variance Decomposition; Monetary Policy Rule (search for similar items in EconPapers)
JEL-codes: C3 E3 E5 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2013-12-31
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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1330

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