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Commodity Prices and Markets$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2011

Print ISBN-13: 9780226386898

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226386904.001.0001

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Oil Shocks in a DSGE Model for the Korean Economy

Oil Shocks in a DSGE Model for the Korean Economy

Chapter:
(p.295) 9 Oil Shocks in a DSGE Model for the Korean Economy
Source:
Commodity Prices and Markets
Author(s):

Sungbae An

Kang Heedon

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226386904.003.0010

This chapter describes the oil shocks using a dynamic stochastic general equilibrium (DSGE) model for the Korean economy. The Korean economy depends entirely on imports for its acquisition of crude oil, and households, entrepreneurs, and policymakers are interested in knowing to what extent the rise in oil prices affects the economy. Within an Bayesian estimation framework including DSGE-vector autoregressions (VARs), the empirical analysis used is based on Korean aggregate data. Using Bayesian analysis, the model is used to check the importance of each channel that transmits an oil price shock to the economy. It is found that the model economy produces reasonable posterior estimates of the structural parameters and works relatively well compared to impulse responses from the VAR with optimal prior weight from the DSGE model. A more elaborated model on government behavior is anticipated to investigate the pass-through of oil price shocks.

Keywords:   Korean economy, imports, dynamic stochastic general equilibrium model, DSGE, vector autoregression, VAR, oil price shocks, Bayesian analysis

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