van Wijnbergen, S. (1982). Stagflationary effects of monetary stabilization policies. A quantitative analysis of South Korea Journal of Development Economics, 10(2):133--169.
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Affiliated authorSweder van Wijnbergen
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Publication year1982
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JournalJournal of Development Economics
We present a quarterly macroeconomic model of South Korea that explicitly incorporates stylized facts about Korea's financial structure (absence of primary securities markets, existence of a curbmarket for credit, etc.). The model focuses on the linkage between financial and real sectors and explicitly incorporates the transmission channel of monetary policy into the supply side of the economy via the real costs of working capital ('('avallo-effect'). The econometric evidence presented here shows the relevance of this effect. Simulation runs with the model based on the estimated parameter values show strong stagflationary effects of restrictive monetary policy in the short run because of this transmission channel.