A small open economy such as Korea is vulnerable to outside shocks, in particular, world interest rate shocks, exchange rate shocks (or the terms of trade shocks), and foreign productivity shocks. Many researchers have empirically analyzed the effects of these shocks on macroeconomic variables using various time series estimation methods including the VAR. However, there has been an increasing demand for an analysis based on a simulation method using dynamic stochastic general equilibrium (DSGE) models, because the empirical estimation can only provide ad-hoc economic interpretations of the results. (The rest is omitted.)

Executive Summary

I. Introduction

II. Business Cycles in Korea

III. Model

IV. Calibration

V. Comparing the second moments

VI. Impulse Responses
1. Productivity shocks
2. Terms of trade (TOT) shock
3. Interest rate and government spending shocks

VII. Conclusion

References

Appendix