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Limited Financial Market Participations and Shocks in Business Cycles in Korea

Author

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  • Jung, Yongseung

    (Kyung Hee University)

Abstract

This paper sets up a small open new Keynesian economy model with constrained households and incomplete markets to address the driving forces of business cycles in Korea. It shows that there exists a substantial fraction of constrained households who cannot have access to financial market. Furthermore, the estimated model reveals that a TANK model is better than a RANK model in explaining business cycles in Korea. The effect of domestic productivity shock on Korean economy has dominated in the variations of output, while the contribution of the foreign productivity shock to the variations of output and inflation has increased after the Asian financial crisis. The monetary policy shock has dominated the variation of inflation at short and medium horizons.

Suggested Citation

  • Jung, Yongseung, 2024. "Limited Financial Market Participations and Shocks in Business Cycles in Korea," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 28(2), pages 245-273, June.
    • Handle: RePEc:ris:eaerev:0436
    DOI: 10.11644/KIEP.EAER.2024.28.2.436
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    Keywords

    Business Cycles; HtM; Korea; Maximum Likelihood Estimation; TANK;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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