The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach

Shiyou Zhu; Seo-Hyeong Lee

doi:doi:10.11648/j.ijber.20160504.18

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The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach

Shiyou Zhu, Seo-Hyeong Lee

Published in International Journal of Business and Economics Research (Volume 5, Issue 4)

Received: 5 August 2016 Published: 8 August 2016

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Abstract

This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.

Published in	International Journal of Business and Economics Research (Volume 5, Issue 4)
DOI	10.11648/j.ijber.20160504.18
Page(s)	127-134
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Monetary Policy, Transmission Effects, Trade Balance, Real Output, Structural VAR, Variance Decomposition

References

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[2]	S. M. Barakchian, “Transmission of US monetary policy into the Canadian economy: A structural cointegration analysis,” Economic Modelling, vol. 46, 2015, pp. 11-26.
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[5]	D. B. Gorden, and E. M. Leeper, “The dynamic impacts of monetary policy: An exercise in tentative identification,” Journal of Political Economy, vol. 102, 1994, pp. 1228-247.
[6]	N. Grilli, and N. Roubini, “Liquidity models in open economies: Theory and empirical evidence,” NBER Working Paper No 5313, Cambridge: National Bureau of Economic Research, 1995.
[7]	S. Kim, “International transmission of U.S. monetary policy shocks: evidence from VAR's,” Journal of Monetary Economics, vol. 48, 2001, pp. 339–372.
[8]	S. Kim, and N. Roubini, “Exchange rate anomalies in industrial countries: A solution with structural VAR approach,” Journal of Monetary Economics, vol. 45, 2000, pp. 561-586.
[9]	S. H. Lee and S. Zhu, “Time-varying transmission effects of external shocks into inflation: how different is China from Korea?” China Economic Journal, vol. 9, 2016, 1-16.
[10]	Z. L. Li and D. L. Liang, “Dynamic impact of American monetary policy on China’s economic - An application of the SVAR model,” Economic and Management Research, vol. 3, 2011, pp. 77-83.
[11]	J. G. MacKinnon, “Numerical distribution functions for unit root and cointegration Tests,” Journal of Applied Econometrics, vol. 11, 1996, pp. 601-618.
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Shiyou Zhu, Seo-Hyeong Lee. (2016). The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. International Journal of Business and Economics Research, 5(4), 127-134. https://doi.org/10.11648/j.ijber.20160504.18

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ACS Style

Shiyou Zhu; Seo-Hyeong Lee. The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. Int. J. Bus. Econ. Res. 2016, 5(4), 127-134. doi: 10.11648/j.ijber.20160504.18

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AMA Style

Shiyou Zhu, Seo-Hyeong Lee. The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. Int J Bus Econ Res. 2016;5(4):127-134. doi: 10.11648/j.ijber.20160504.18

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@article{10.11648/j.ijber.20160504.18,
  author = {Shiyou Zhu and Seo-Hyeong Lee},
  title = {The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach},
  journal = {International Journal of Business and Economics Research},
  volume = {5},
  number = {4},
  pages = {127-134},
  doi = {10.11648/j.ijber.20160504.18},
  url = {https://doi.org/10.11648/j.ijber.20160504.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20160504.18},
  abstract = {This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.},
 year = {2016}
}

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TY  - JOUR
T1  - The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach
AU  - Shiyou Zhu
AU  - Seo-Hyeong Lee
Y1  - 2016/08/08
PY  - 2016
N1  - https://doi.org/10.11648/j.ijber.20160504.18
DO  - 10.11648/j.ijber.20160504.18
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 127
EP  - 134
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20160504.18
AB  - This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.
VL  - 5
IS  - 4
ER  -

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Author Information

Shiyou Zhu

School of Finance, Anhui University of Finance and Economics, Bengbu, China
Seo-Hyeong Lee

Department of International Commerce, Keimyung University, Daegu, Korea

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APA Style

Shiyou Zhu, Seo-Hyeong Lee. (2016). The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. International Journal of Business and Economics Research, 5(4), 127-134. https://doi.org/10.11648/j.ijber.20160504.18

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ACS Style

Shiyou Zhu; Seo-Hyeong Lee. The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. Int. J. Bus. Econ. Res. 2016, 5(4), 127-134. doi: 10.11648/j.ijber.20160504.18

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AMA Style

Shiyou Zhu, Seo-Hyeong Lee. The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach. Int J Bus Econ Res. 2016;5(4):127-134. doi: 10.11648/j.ijber.20160504.18

Copy | Download

@article{10.11648/j.ijber.20160504.18,
  author = {Shiyou Zhu and Seo-Hyeong Lee},
  title = {The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach},
  journal = {International Journal of Business and Economics Research},
  volume = {5},
  number = {4},
  pages = {127-134},
  doi = {10.11648/j.ijber.20160504.18},
  url = {https://doi.org/10.11648/j.ijber.20160504.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20160504.18},
  abstract = {This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.},
 year = {2016}
}

Copy | Download

TY  - JOUR
T1  - The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach
AU  - Shiyou Zhu
AU  - Seo-Hyeong Lee
Y1  - 2016/08/08
PY  - 2016
N1  - https://doi.org/10.11648/j.ijber.20160504.18
DO  - 10.11648/j.ijber.20160504.18
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 127
EP  - 134
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20160504.18
AB  - This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.
VL  - 5
IS  - 4
ER  -

Copy | Download