Optimal macroprudential policy for Korean economy

Junichi Fujimoto, Ko Munakata, Yuuki Teranishi

Research output: Contribution to journalArticle

Abstract

Fujimoto et al. (2014) set up a model with financial frictions through search and matching between firms and banks in the loan market. They also show that optimal policy criteria in the model include terms of credit variables. In this paper, we calibrate the model of Fujimoto et al. (2014) for South Korea and investigate the simple and optimal monetary and macroprudential policy rules that include credit variables in addition to the consumption gap and inflation rate as explanatory variables. We compare the performances of a standard Taylor rule and these optimal rules. Numerical simulations show that the simple macroprudential and monetary policy rules with credit terms can induce higher welfare than the estimated Taylor rule for the Korean economy. Simultaneously, simple macroprudential and monetary policy rules with credit terms do not always improve welfare.

Original languageEnglish
Pages (from-to)119-141
Number of pages23
JournalSeoul Journal of Economics
Volume28
Issue number2
Publication statusPublished - 2015

Keywords

  • Financial market friction
  • Optimal macroprudential policy

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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