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The Effects of Net Worth Shock of the Bank and the Firm on the Business Cycle in the Korean Economy

  • Journal of Insurance and Finance
  • 2019, 30(3), pp.3-32
  • DOI : 10.23842/jif.2019.30.3.001
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : March 18, 2019
  • Accepted : August 19, 2019
  • Published : August 31, 2019

Donghun Joo 1

1한양대학교

Accredited

ABSTRACT

This study constructs the model that has two types of financial accelerator mechanism. The one suggested by Bernanke, Gertler, Gilchrist(1999) works through the firm and the other suggested by Gertler, Karadi(2011) works through the bank. The effects of net worth shocks of the firm and the bank on the business cycle in the Korean economy for the period of 2003-2018 is investigated with the model. Net worth shocks are estimated with the equity share data of the money flow table announced by the Bank of Korea. The firm’s net worth shock shows the significant effect on the business cycle while the effect of the bank net worth shock is negligible. This implies that the financial acceleration mechanism of the firm is more essential than that of the bank when the empirical DSGE model is specified in the Korean economy.

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