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Inspecting Driving Forces of Business Cycles in Korea

Author

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  • Jung, Yongseung

    (Kyung Hee University)

Abstract

This paper sets up a new Keynesian model with external habit to explore the role of each shock over business cycles in Korea. The estimated model via maximum likelihood shows that the productivity shock plays a pivotal role in explaining the output variations before and after the financial crisis since mid-1970s. It also shows that the model with external habit is more successful in explaining the business cycles in Korea after the Asian financial crisis than the model without habit. The monetary policy shock which dominates by accounting for more than 70 percent of the unconditional variance of the inflation rate before the financial crisis is less important in the inflation rate fluctuations after the financial crisis. This partly reflects the regime change of the monetary policy to the inflation targeting rule after the financial crisis.

Suggested Citation

  • Jung, Yongseung, 2019. "Inspecting Driving Forces of Business Cycles in Korea," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 23(4), pages 409-427, December.
    • Handle: RePEc:ris:eaerev:0369
    DOI: 10.11644/KIEP.EAER.2019.23.4.369
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    Keywords

    Business Cycles; Maximum Likelihood Estimation; Sticky Price; Habit; Korea;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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