Estimating monthly Macro-Finance Model for Korea (in Korean)

This paper derives a monthly macro-finance model under No-arbitrage condition in a general equilibrium setup for the Korean Economy since 2001. What differentiates this paper from the existing literature is that (1) the model is designed suitable for monthly data within a compact macro-finance framework and (2) it utilizes the overall term structure information not relying on yields of particular maturities. In addition, this paper attempts to identify the wedge between the actual term structure and the model-implied counterpart, utilizing the frictional factors not embedded in the model. Our estimation results can be summarized as follows. First, even under the Expectations-Hypothesis, the implied term structure matches the actual term structure remarkably well. Second, The average movement in the term structure is mostly accounted for by the expected long term inflation or inflation target. Third, the slope and the curvature of the term structure are influenced by the monetary policy, but not as important as the inflation target, which is in contrast to the empirical evidences observed in U.S. Forth, the difference between actual and implied term structure is small and it is partly correlated with transactions of individuals in the bond market and changes in foreign exchange swap rate. Finally, the weight of the monetary policy authority on inflation stabilization relative to output stabilization is smaller than that observed in U.S. or other industrialized countries, potentially reflecting that the Korean economy experienced sizable business fluctuation but quite stable inflation rates since 2001.