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Oil Price Shocks and the Macroeconomic Activity: Analyzing Transmission Channels using the New Keynesian Structural Model (in Korean)

Author

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  • Keewha Kim

    (Economics Department, Korea University at Sejong)

Abstract

This paper attempts to detect the transmission channels through which oil price shocks affect macroeconomic activities in Korea using the new Keynesian structural model. The main results derived from the counterfactual experiments are as follows. First, oil price shocks lead to a decline in output and a rise in inflation rate and interest rate. Second, the effects of oil price shocks on inflation increase is temporary whereas, its influence on output decrease continuous for a relatively long period. Third, inflation rates respond more strongly to the direct channel of cost push than to the indirect channel of interest rate change. Fourth, regarding the contractionary effects of oil price shocks on output, demand channel by decline in aggregate demand has much stronger effects than supply channel by production cost increase. Fifth, if the central bank respond more strongly to changes in output and inflation rate, output will be restored more quickly to a long-run equilibrium. Sixth, there are limitations on the effects of the central bank's response to fully offset the negative effects of oil price shocks through interest rate adjustment. Lastly, the effects of oil price shocks on macroeconomic activities spread more strongly through direct channel than indirect channel.

Suggested Citation

  • Keewha Kim, 2012. "Oil Price Shocks and the Macroeconomic Activity: Analyzing Transmission Channels using the New Keynesian Structural Model (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 18(1), pages 1-29, March.
    • Handle: RePEc:bok:journl:v:18:y:2012:i:1:p:1-29
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    Cited by:

    1. Jihoon Lee & Hong Chong Cho, 2021. "Impact of Structural Oil Price Shock Factors on the Gasoline Market and Macroeconomy in South Korea," Sustainability, MDPI, vol. 13(4), pages 1-23, February.

    More about this item

    Keywords

    Oil Price Shocks; Structural Model; Counterfactual Experiments; Transmission Channels;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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