Macroeconomic Dynamics in Korea during and after the Global Financial Crisis: A Bayesian DSGE Approach

The evolving global economic landscape necessitates adaptive monetary policies, especially for economies like South Korea that are deeply integrated with global markets. This research explores the strategic recalibrations of the Bank of Korea’s monetary policy amid fluctuations in global economic uncertainty. Utilizing a sophisticated microeconomic theoretical framework, this study employs Bayesian estimation techniques and impulse response analysis to dissect the dynamic effects of these global shocks on South Korea’s macroeconomic stability and policy direction. Our findings reveal that the Bank of Korea has adeptly navigated through turbulent economic conditions induced by external shocks through well-coordinated policy adaptations. These adaptations, which include both traditional and innovative monetary tools, have been crucial in stabilizing the financial environment and promoting economic growth. By detailing the tailored application of the Taylor rule within the Korean context and strategic foreign exchange interventions by the central bank, this study contributes significantly to the broader discourse on the efficacy of monetary policy in open economies and offers insights on integrating advanced analytical methods into economic policy analysis.

Section: Parameter Calibration and Estimationmentioning

confidence: 99%

Navigating Uncharted Waters: The Transformation of the Bank of Korea’s Monetary Policy in Response to Global Economic Uncertainty

He,

Teng

2024

“…Additionally, in the impulse response function results section, we conducted a comparative analysis with the results of Macera and Divino [21]. Moreover, a significant amount of literature focus on building small open economy models for South Korea (see, Bae [22], Kim [23], Choi and Hur [24], Yie and Yoo [25], and Kang and Suh [26]). These works offer us model structures and parameter values suited to the South Korean economy, the details of which are explained in the sections on model introduction and parameter calibration.…”

Section: Literature Reviewmentioning

confidence: 99%

Macroeconomic Effects of Maritime Transport Costs Shocks: Evidence from the South Korean Economy

Ding,

Choi

2023

In the aftermath of the COVID-19 pandemic, the dramatic increase in maritime transport costs might potentially exert detrimental impacts on the macroeconomy, especially for countries that heavily rely on international trade for their consumption and production activities. Our study employs a small open economy DSGE (Dynamic Stochastic General Equilibrium) model to analyze the impact of maritime transport costs on the South Korean macroeconomy, where maritime transport costs are considered as key factors impacting the law of one price. Positive shocks in maritime transport costs, according to the impulse response function, have positive repercussions on the Consumer Price Index (CPI), terms of trade, nominal exchange rates, and nominal interest rates, but can negatively affect real output and real exchange rate. To verify the validity of the our DSGE model, we utilize a Vector autoregression with exogenous variables (VARX) model to examine the dynamic relationship between maritime transport costs and South Korean macroeconomic variables, based on quarterly data from the first quarter of 2002 to the fourth quarter of 2022. The results of the VARX model coincide with those of the DSGE model. Our findings underline the importance of maritime transport costs in the macroeconomy and hold substantial implications for the considered design and selection of policies to mitigate such shocks.

“…Follow Yie and Yoo [27], the discount factor (β) is 0.988. Following Kang and Suh [28], the capital share in production (γ) is 0.33. Following Hur and Rhee [29], the depreciation rate (δ) is 0.025.…”

Section: Parameter Calibrationmentioning

confidence: 99%

“…Following Torres [33], the auto-regressive coefficient of home productivity (ρ h ) is 0.95 with a standard deviation of 0.01. Following Kim [34], Kang and Suh [28], and Hur and Lee [35], the consumption tax rate (τ 1 t ) is 0.1; the labor tax rate (τ 2 t ) is 0.095; and the capital tax rate (τ 3 t ) is 0.219. Following the South Korea Government Budget, the fiscal deficit ratio (φ t ) is 0.061.…”

Section: Parameter Calibrationmentioning

confidence: 99%

Home Production: Does It Matter for the Korean Macroeconomy during the COVID-19 Pandemic?

2022

The COVID-19 pandemic has had a tremendous influence on many aspects of life in Korea. Some people have had to relocate their workplaces from factories or offices to their homes in order to stop the spread of the virus. This paper examines the effects of home production on the Korean macroeconomy during the COVID-19 pandemic. Then, the impulse response function is used to perform an empirical analysis. The results show that total output, market goods consumption, investment, capital, and market work hours all decline as a consequence of a home productivity shock, while home goods consumption, wages, transfer payments, and home work hours all increase. Moreover, using fiscal policies such as lowering the capital tax rate and increasing the fiscal deficit, the effect of the COVID-19 pandemic on the Korean macroeconomy can be improved. Robustness tests are carried out in light of the uneven economic development and different COVID-19 pandemic scenarios inside and outside the Seoul circle. The conclusions of this paper are accurate and reliable, as shown by the results of the robustness test.