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Monetary Policy Shocks in a Small Open Economy: Assessing the 'Puzzles' of Monetary Policy by SVAR

Ajluni, Jarir (2005): Monetary Policy Shocks in a Small Open Economy: Assessing the 'Puzzles' of Monetary Policy by SVAR.

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Abstract

The paper examines the effects of monetary policy shocks and its puzzles on a small open economy using quarterly Korean data by applying a theoretically motivated Structural VAR, with the objective of introducing empirical evidence that investigates the magnitude and persistence of monetary policy using impulse response function analysis. There is some evidence on the occurrences of monetary policy puzzles confirming previous outcomes in the literature, results suggest that domestic monetary contraction fail to significantly decrease inflation while lost output is more significant, and effect of foreign interest rates suggests limited capacity for an independent monetary policy in the small open economy of Korea.

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