[KSCI] Korea Science Citation Index Service

http://dx.doi.org/10.11644/KIEP.EAER.2018.22.2.341

A Comparison Analysis of Monetary Policy Effect Under an Open Economy Model

Lee, Keun Yeong (Sungkyunkwan University)

Publication Information

East Asian Economic Review / v.22, no.2, 2018 , pp. 141-176 More about this Journal

Abstract

The paper analyzes and compares the effects of domestic monetary policy using DSGE, DSGE-VAR, and VAR based on a two-country open economy model of Korea and the U.S. According to impulse response analysis, a domestic interest rate hike raises won value in the case of DSGE and DSGE-VAR models, while in the case of the unrestricted VAR model, it lowers won value. In the marginal data density standard, DSGE-VAR ( ${\mu}=1$ ) is superior to DSGE or Bayesian VAR over the sample period. Conversely, in the in-sample RMSE criterion, especially for the won/dollar exchange rate, VARs are superior to DSGE or DSGE-VAR. It is necessary to study further if these differences are caused by model misspecification or omitted variable bias.

Keywords

DSGE; DSGE-VAR; Bayesian VAR; Marginal Data Density; RMSE;

Citations & Related Records

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