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

Author

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  • Byoung Ho Bae

    (The 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.

Suggested Citation

  • Byoung Ho Bae, 2013. "The Role of Financial Factors in the Business Cycle and the Transmission of Monetary Policy in Korea (in Korean)," Working Papers 2013-30, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1330
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    More about this item

    Keywords

    DSGE; Financial Friction; Business Cycle; Variance Decomposition; Monetary Policy Rule;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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