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An empirical investigation of monetary interaction in the Korean economy

  • Choo, Han Gwang
  • Kurita, Takamitsu
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    This paper conducts an econometric investigation of monetary interaction in the Korean economy over the past two decades. The study pays close attention to a critical role played by broad money and an interest rate term spread in the economy. A vector autoregression reveals two cointegrating relationships, both of which are consistent with macroeconomic theory: the first relationship corresponds to a broad money demand function, while the second represents a monetary policy rule function. The cointegrated system is then reduced to a vector equilibrium correction system, which characterizes the interaction between money demand and monetary policy rule. It is also demonstrated that the preferred model is a reliable forecasting device, suggesting that the broad money contains information about the real economy in the future.

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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 20 (2011)
    Issue (Month): 2 (April)
    Pages: 267-280

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    Handle: RePEc:eee:reveco:v:20:y:2011:i:2:p:267-280
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