Informal Credit Markets and the Transmission of Monetary Policy: Evidence from South Korea
This paper is an empirical investigation of the transmission of monetary policy in South Korea. It combines modern mainstream macroeconomics with aspects of a developing economy with financial dualism through a simple IS-LM type model that explicitly incorporates an informal credit market. Vector autoregression analysis, with both semistructural and structural identifications, confirms the importance of a credit variable as a policy tool. The results show direct credit allocation by the central bank had a significant impact on output, prices, and the interest rate in the informal sector. Previous theoretical and empirical findings of "stagflationary" effects of monetary policy are refuted. Copyright 1999 by Blackwell Publishing Ltd
Volume (Year): 3 (1999)
Issue (Month): 3 (October)
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