Optimal Macroprudential Policy for Korean Economy

Seoul Journal of Economics 28 (No. 2 2015): 119-142

24 Pages Posted: 30 Jun 2015

See all articles by Junichi Fujimoto

Junichi Fujimoto

University of Tokyo

Ko Munakata

Bank of Japan

Yuki Teranishi

Keio University - Faculty of Business and Commerce

Date Written: May 29, 2015

Abstract

Fujimoto et al. (2014) set up a model with financial frictions through search and matching between firms and banks in the loan market. They also show that optimal policy criteria in the model include terms of credit variables. In this paper, we calibrate the model of Fujimoto et al. (2014) for South Korea and investigate the simple and optimal monetary and macroprudential policy rules that include credit variables in addition to the consumption gap and inflation rate as explanatory variables. We compare the performances of a standard Taylor rule and these optimal rules. Numerical simulations show that the simple macroprudential and monetary policy rules with credit terms can induce higher welfare than the estimated Taylor rule for the Korean economy. Simultaneously, simple macro-prudential and monetary policy rules with credit terms do not always improve welfare.

Keywords: Optimal macroprudential policy, Financial market friction

JEL Classification: E44, E52, E61

Suggested Citation

Fujimoto, Junichi and Munakata, Ko and Teranishi, Yuki, Optimal Macroprudential Policy for Korean Economy (May 29, 2015). Seoul Journal of Economics 28 (No. 2 2015): 119-142, Available at SSRN: https://ssrn.com/abstract=2624461

Junichi Fujimoto

University of Tokyo

Yayoi 1-1-1
Bunkyo-ku
Tokyo, Tokyo 113-8657
Japan

Ko Munakata

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

Yuki Teranishi (Contact Author)

Keio University - Faculty of Business and Commerce ( email )

2-15-45 Mita
Minato-ku
Tokyo 108-8345
Japan

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