Journal Article

Financial Factors in the Business Cycle of a Small Open Economy: The Case of Korea

Rhee, Wooheon, Lee, Junhee

2013

Overview

Financial factors influencing the business cycle have received considerable attention in recent years in the aftermath of the global financial crisis in 2008. This paper examines the role of financial factors in the business cycle by considering Korea, a small open economy, that experienced a severe financial crisis in 1997 as well as the recent global financial crisis. We estimate small open economy Bayesian DSGE (dynamic stochastic general equilibrium) models with financial factors and analyze the role of these financial factors in the business cycle in the context of Korea. The results indicate that the model based on an endogenous financial accelerator and a modified monetary policy rule provides a better explanation to the data than that without the financial factors and justify the recent attention to financial factors influencing the business cycle.

• Publisher: Springer US,Springer Nature B.V
• Subject: Attention / Bayesian analysis / Bayesian method / Business / Business cycles / Consumption / Development Economics / Economic crisis / Economic growth / Economic models / Economic Policy / Economic statistics / Economic theory / Economics / Economics and Finance / Endogenous / Equilibrium / Equity / European Integration / Expected utility / Financial crisis / GDP / Gross Domestic Product / Households / Inflation / Interest rates / International Economics / International finance / Labor supply / Lagrange multiplier / Macroeconomics/Monetary Economics//Financial Economics / Maximum likelihood method / Monetary policy / Open economies / Phillips curve / Propagation / Research Article / Risk premiums / South Korea / Stochastic models / Studies