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Are structural parameters of DSGE models stable in Korea?

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  • Lee, Jiho

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.

Suggested Citation

  • Lee, Jiho, 2012. "Are structural parameters of DSGE models stable in Korea?," Journal of Asian Economics, Elsevier, vol. 23(1), pages 50-59.
    • Handle: RePEc:eee:asieco:v:23:y:2012:i:1:p:50-59
    DOI: 10.1016/j.asieco.2011.08.002
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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.
    2. Yugang He, 2022. "Home Production: Does It Matter for the Korean Macroeconomy during the COVID-19 Pandemic?," Mathematics, MDPI, vol. 10(12), pages 1-12, June.
    3. Jan Čapek, 2016. "Structural Changes in the Czech Economy: A DSGE Model Approach," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(1), pages 37-52.

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