Abstract | PDF (932 kilobytes)

We examine whether a new Keynesian DSGE model can generate yields that match the spectral properties of the actual yields. For this purpose, we consider two competing specifications for utility in a DSGE model: habit formation and recursive utility. We find that the yields generated from the DSGE model with either specification for utility can match the spectral properties of the actual yields reasonably well. However, it seems fair to say that each specification has some individual disadvantages. In the case of habit formation, we need very persistent and large shocks to explain the time-varying term premia. The DSGE models with recursive utility are not free of problems, either. They have difficulty in generating either a sufficient yield curve slope or positive (negative) correlations between nominal interest rates (spreads) and output.

Abstract | PDF (640 kilobytes)

This paper presents a search-theoretic model to investigate the role for consumers' trade-or-not-to-trade decisions in the interaction between nominal prices and the frequency of monetary trade. The general message of the results is that it yields a positive relationship between them. A rise in prices, which cuts down the value of money, leads consumers to spend their money more quickly. Moreover, there could exist positive feedback: it is found that more frequent shopping of consumers raises the prices posted by profit-maximizing producers or determined in some alternative environments. This positive relationship provides a theoretical account for a positive effect of expansionary monetary policy on production, which is not channeled by capital-money portfolio decisions. Around the unique monetary steady state of the model, an increase in the money supply normally raises nominal prices and the frequency of monetary trade at the same time. This implies that it has not only negative intensive effect but also positive extensive one on production.

Abstract | PDF (1042 kilobytes)

This paper analyzes the competitive effects of the horizontal merger between two superstores in Korea, Homeplus and Homever. We calculated a price index covering a large number of products for individual Homeplus stores in different regions, and conducted a regression analysis to evaluate the likely competitive effects of the proposed merger. We found that the maximum difference in price index across 51 Homeplus stroes is less than 2.5%, and the price indexes of these stores are independent of the degree of concentration in the region where each store is located. We also found that the presence of Homever stores has no significant effect on the price index of the nearby Homeplus stores, while the existence of Emart stores and tranditional markets has some negative effect. These results imply that the merger is not likely to lead to the elevation of prices. We found similar results in a regression analysis using cross-section data.

Abstract | PDF (1047 kilobytes)

Recently, the European Central Bank emphasized two pillar strategy for monetary policy analysis in terms of considering the role of money in the long run. The background of this strategy is that the long-run money growth plays an important role in explaining the Phillips curve or the money functions as a cross-check for the shortrun and long-run inflation targeting. Additionally, recent study showed that the money is important for explaining the IS model. This study examines the role of money in the monetary policy rule through looking at the significant role of money in the Phillips curve and in the IS model on the ground that the optimal monetary policy rule can be derived based on the Phillips curve and the IS model. The empirical results show using after-Korean financial crisis data that most of monetary aggregates except the Lf (M3) are not statistically significant in the Phillips curve and the IS model. This result implies that it is unlikely for the money to play an important role in the Taylor-type monetary policy rule. However, the Lf monetary aggregate appears to be statistically significant, and thus this study suggests that the Bank of Korea (BOK) looks carefully into the information on the Lf monetary aggregate when the BOK conducts the Taylor-type monetary policy rule.