Inspecting Driving Forces of Business Cycles in Korea

19 Pages Posted: 10 Jan 2020 Last revised: 28 Sep 2020

See all articles by Yongseung Jung

Yongseung Jung

Kyung-Hee University - Department of Economics

Date Written: December 30, 2019

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.

Keywords: Business Cycles, Maximum Likelihood Estimation, Sticky Price, Habit, Korea

JEL Classification: E21, E32, E52

Suggested Citation

Jung, Yongseung, Inspecting Driving Forces of Business Cycles in Korea (December 30, 2019). East Asian Economic Review Vol. 23, No. 4 (December 2019) 409-427, DOI: 10.11644/KIEP.EAER.2019.23.4.369, Available at SSRN: https://ssrn.com/abstract=3516547 or http://dx.doi.org/10.2139/ssrn.3516547

Yongseung Jung (Contact Author)

Kyung-Hee University - Department of Economics ( email )

Seoul 130-701
Korea

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