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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 Oil and Macroeconomy

OIl Oil and Macroeconomy

The Case of Korea

(p.263) 8 OIl Oil and Macroeconomy
Commodity Prices and Markets

Junhee Lee

Joonhyuk Song

University of Chicago Press

This chapter analyzes the nature of oil price hikes and their impacts on the Korean economy. The chapter examines in detail whether the recent oil price hike is similar to or different from previous ones in terms of its origination. The impacts of the recent oil price hike on the Korean economy are investigated and compared to previous experiences. A dynamic stochastic general equilibrium model is built to examine the issue of using a structural model. The model incorporates a Taylor-type monetary policy rule, and monetary policy responds differentially to oil and nonoil prices, which correspond to noncore and core measures of inflation. It is found that energy and oil price are relatively flexible compared to nonoil prices and wages, and it is stated that monetary policy would stabilize the economy better if it could be made to accommodate oil price inflation rather than fight against it.

Keywords:   macroeconomy, Korean economy, oil price hikes, nonoil prices, monetary policy, wages

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