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Are structural parameters of DSGE models stable in Korea?

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  • Lee, Jiho
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Abstract

This paper examines whether the structural parameters of dynamic stochastic general equilibrium (DSGE) models are stable over time in Korea. By estimating a DSGE model, we find evidence that the 1997 Asian financial crisis did not change structural parameters in spite of significant policy changes and institutional reforms. This empirical finding has important significance for Korea's policymakers, as they can no longer rely on a DSGE modeling strategy for policy analysis and forecasting without structural parameter stability. Moreover, this paper shows that the current DSGE model is superior to simple time series models in forecasting key macroeconomic variables in most cases. Finally, the current model successfully reproduces the relative volatilities of consumption, investment and hours worked with respect to output as well as the pattern of contemporaneous correlations of output with other variables.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 1 ()
Pages: 50-59

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Handle: RePEc:eee:asieco:v:23:y:2012:i:1:p:50-59

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Web page: http://www.elsevier.com/locate/asieco

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Keywords: Structural parameter stability; Dynamic stochastic general equilibrium model;

References

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Cited by:
  1. Lee, Jiho, 2013. "Consumption, financial wealth and labor income in Korea," Japan and the World Economy, Elsevier, vol. 25, pages 59-67.

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