Staggered Price Settings, Exchange Rates, and Monetary Policy

Yongseung Jung 서울대학교 경제연구소 2003 Seoul journal of economics Vol.16 No.4

This paper examines the effects of monetary policy in an optimizing two-country model in which monopolistically competitive firms set their prices in advance, so that the prices are sticky. The main findings of this paper are that there occurs an instantaneous depreciation of the exchange rates through a countercyclical response of a markup when there is a positive home monetary shock. The paper shows that the sticky price model cannot resolve the forward premium puzzle. The degree of depreciation depends on the degree of price stickiness as real variables become more volatile with stronger price stickiness. Finally, the nominal exchange and real exchange rates move very closely as in data when there is a substantial degree of price rigidity.

Discretion versus Inflation Targeting in Economies with Relative Habit Persistence

( Yongseung Jung ) 한국경제학회 2016 The Korean Economic Review Vol.32 No.1

This paper sets up a canonical new Keynesian model with habit persistence in consumption. The paper estimates key parameters using maximum likelihood and shows that the habit persistence improves the explanatory power of the model over the business cycle, irrespective of habit formation way. If the distortions associated with external habit are not completely eliminated by the fiscal policy, then the remaining external habit entails a gap between the private marginal rate of substitution between consumption and labor and the social marginal rate of substitution, generating an endogenous trade-off between the stabilization of welfare-relevant output gap and inflation. Under this circumstance, discretion, partially taking into account the trade-off between output gap and inflation, can be better than a strict inflation targeting rule in welfare dimension if the fiscal authority does not implement any tax policy to eliminate the distortions associated with external habit. The monetary policy to deal with distortions associated with external habit is less effective in the ratio external habit model than in the difference habit model, resulting in a higher the inflation rate in the ratio external habit model than the inflation rate in the difference habit model.

Business Cycles and Limited Participation in Financial Markets: The Case of Korea

Yongseung Jung 한국계량경제학회 2020 JOURNAL OF ECONOMIC THEORY AND ECONOMETRICS Vol.31 No.3

This paper investigates sources of business cycles in Korea to shedsome lights on the role of limited participation in financial market along the lineof Christiano and Eichenbaum (1992) and King and Watson (1996). For thispurpose, the paper sets up a small open economy model with two agents subjectto limited participation in financial markets. Applying Watson (1993)’s measureof fit to evaluate the role of limited participation over Korean business cycles, itfinds that the household’s limited participation has played an important role inthe business cycle in Korea after the Asian financial crisis.

A Look at Habit Persistence over Business Cycles

Jung, Yongseung 한국은행 2008 經濟分析 Vol.14 No.3

This paper sets up a Calvo-type sticky price model as well as a Taylor-type sticky price model, internal habit formation and expenditure delays as in Bernanke et al. (1998). It shows that internal habit formation and expenditure delays improve the sticky price models in explaining the selected variables at nearly all frequencies. Consumption displays a hump-shaped response to a positive monetary shock when there is a moderate habit persistence with capital adjustment costs. However, the models have difficulty in generating the power spectrum of interest rates and its cross correlation with output, as seen in the data.

The Term Structure of Interest Rates and The Real Activity in a Sticky Price Model

Yongseung Jung 서울대학교 경제연구소 2001 Seoul journal of economics Vol.14 No.1

This paper sets up a sticky price model in which money is used to reduce the transaction costs. It shows that the contemporaneous correlations between interest rates and output of the sticky price model match well the data. It also shows that a flexible price model fails to generate interest rates as inverted leading predictors of real economic activity, while a sticky price model partly has a limited success. This paper also shows that the term spread of a sticky price model partly matches the data when there is a modest nominal rigidity.

Optimal Environmental Policy in a Small Open Economy Under a New Keynesian Framework

Yongseung Jung,양두용 한국사회과학협의회 2023 Korean Social Science Journal Vol.50 No.2

This paper analyzes the optimal environmental policy under the new Keynesian environment. First, this paper conducts an empirical analysis using panel VAR. The results show that a 10% reduction in carbon dioxide is associated with a 2% reduction in GDP. To build a theoretical model, we next model the impact of the environment on economic activity in a small open economy and analyze the impact of environmental policies under a new Keynesian model. The results are as follows. First, optimized taxation should respond strongly to emissions and output since the emission is procyclical and firms’ abatement efforts are procyclical, dampening business cycle fluctuations. Second, environmental taxation should be levied on domestic emission flows, not the overall stock of emissions, since it is more efficient and likely to generate less macroeconomic volatility by inducing firms to reduce emissions and optimally adjust their activities over time. Finally, the simple optimized environmental taxations show that the environmental taxation policy should be aggressive and not tax-smoothing type since the so-called tax-smoothing policy is welfare detrimental.

Understanding the Real Exchange Rate and Consumption: Limited Asset Market Participation

( Yongseung Jung ) 한국경제학회 2017 The Korean Economic Review Vol.33 No.1

This paper sets up an open-economy new Keynesian model with limited asset market participation and expenditure delays to explore the real exchange rate and consumption anomaly. The main finding of the paper is that relative aggregate consumption move less closely with the real exchange rate defined as the marginal utility of consumption in foreign country relative to the marginal utility of consumption in home country when only some households with expenditure delays can protect themselves from risk by participating in the financial market and the rest of the households consume their current wage income. The correlation between the real exchange rate and relative consumption turns into a negative territory when households are less willing to substitute home goods with foreign goods.

Macroprudential and Monetary Policies : Implications for House Prices and Household Debt

Yongseung Jung 서울대학교 경제연구소 2015 Seoul journal of economics Vol.28 No.2

This study examines the effect of the interaction between timevarying macroprudential policy and credit growth or house price growth on dampening the excess volatility of household debt in the standard DSGE model. The study also discusses the effect of introducing the debt-to-income ratio, aside from the loan-to-value ratio, on cooling down large household debt swings. Moreover, this study shows that the reaction of macroprudential policy to credit growth is more effective than its reaction to house price growth in moderating household debt swings to exogenous shocks.

By Force of Habit Formations and Exchange Rate Movements

Yongseung Jung 서울대학교 경제연구소 1999 Seoul journal of economics Vol.12 No.1

This paper sets up a habit persistence monetary model in line with Campbell and Cochrane (1995) with transaction costs in consumption. It discusses the behavior of exchange rates and consumption as well as other variables to various shocks. This paper shows that the habit persistence model fails to explain the exchange rate fluctuations and the movement of consumption due to a locally large value of relative risk aversion.

Are Asian Business Cycles Different?

Yongseung Jung,Soyoung Kim,Doo Yong Yang,Tack Yun 대외경제정책연구원(KIEP) 2011 Working Papers Vol.2011 No.1

본 논문은 아시아의 비즈니스 사이클을 분석하고자 한다. 일반적으로 소규모 개발도상국의 비즈니스 사이클은 소규모 선진국과는 다른 것으로 알려져 왔다. 가장 흥미로운 것은 개도국 비즈니스 사이클에서 나타나는 지나친 소비 변동성과 두드러진 순수출의 반순환적 특성이다. 아시아와 라틴 국가들에서 이러한 특성이 어느 정도 공통적으로 나타난다. 그러나 아시아의 비즈니스 사이클 특성은 라틴 아메리카 국가들과는 다르다. 아시아의 경우 소비 변동성이 라틴 개도국과는 다르게 상대적으로 작게 나타난다. 그러나 순수출의 반순환적 특성은 라틴 국가에 비해 강하다. 한편 내구재 변동성은 상대적으로 개도국에서 높게 나타나는데 라틴 국가와 아시아 개도국에서 이러한 높은 내구재 변동성을 발견하였다. 흥미로운 것은 내구재 소비와 순수출의 상관관계가 아시아(한국)에서는 부의 관계를 보이는 반면, 라틴에서는 정의 관계를 보인다는 것이다. 수출과 수입을 따로 나누어 상관관계를 살펴보아도 아시아와 라틴의 경우가 서로 다르게 나타난다. 결론적으로 아시아와 라틴 개도국은 소비, 순수출 그리고 수출입을 연결하는 전송 메커니즘이 다르다고 할 수 있다. 이를 기초로 교역조건이 주요 거시경제에 미치는 영향을 Vector Auto-regression (VAR)을 통해 분석하였는데, 라틴 개도국의 경우에는 긍정적인 교역조건 충격이 실질 총생산에 긍정적인 영향을 미치는 반면, 아시아 개도국의 경우에는 실질 총생산에 별 영향이 없었다. 그러나 아시아의 경우 교역조건 충격은 라틴 개도국에 비해 상대적으로 순수출에 단기적으로 지속적이고 강한 영향을 미치는 것으로 나타났다. 본 논문은 이러한 분석을 바탕으로 아시아(한국)의 내구재 비즈니스 사이클 모형을 제시하고 있다. 이 모형은 내구재 소비를 통해 아시아 경기 변동을 보다 잘 설명할 수 있음을 보여준다. This paper investigates business cycles in Asia. Business cycles in developing small, open countries are different from those in developed small countries. Most interesting characteristics in developing countries are excessive consumption volatilities and strong countercyclical net export. Asia and Latin American developing countries share these characteristics. However, there are also differences in business cycles in both regions. We find that Asia shows less excessive consumption expenditure volatility to output than Latin American countries, and strong countercyclical net exports. More interestingly, the durable consumption is negatively related with net export in Asia (Korea), while Latin America (Chile) shows positive correlation. Moreover durable consumption shows a negative relationship with export and import while durable consumption in Latin America has positive relationship with export and import. We believe that there exist different transmission mechanisms in Latin America and Asia that connect consumption, net exports and export or import. We find that positive terms of trade shock increase the real GDP significantly in the short run for Latin America, but have no significant effects for East Asia. However, response of net exports to the terms of trade shocks is stronger and more persistent in Asia than in Latin America. This paper also present an analytic model that could explain the durable goods business cycles in Asia. The model can explain durable business cycles in Asia (Korea) which generate strong procyclical durable consumption by the export-income channel with market laddering.