Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Structural Estimates of the Monetary Transmission Mechanism in Korea : Pre-1997 Financial Crisis

Vol.16, No.1, March , 13–32


English Version |  Korean Version
  •   (Sogang University)

  •   (The Korea Chamber Of Cummerce & Industry)

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Abstract  

This study analyzes the effect of monetary supply shocks on the interest rate, prices, stock prices and real output prior to 1997 financial crisis in Korea. This paper used a long-run structural vector error- correction model. This approach identifies monetary policy shocks by imposing cointegration restrictions such as a money demand function and assuming long-run money neutrality. Under this method, this paper resolved two recurring puzzles which are often found in VAR models. Immediately following an expansionary monetary policy shocks the interest rate decreases(if the interest rate increases, it is called as a `liquidity puzzle'). Also following an unanticipated monetary expansion, the price level initially increases(if the price level decreases, it is termed as a `price puzzle').


Keywords
   Monetary transmission mechanism, Liquidity puzzle, Price puzzle, Structural vector error-correction model

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