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Stagflationary effects of monetary stabilization policies : a quantitative analysis of South Korea (English)

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  • Stagflationary effects of monetary stabilization policies : a quantitative analysis of South Korea (English)
  • van Wijnbergen, Sweder
  • World Bank (WB)


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Title Stagflationary effects of monetary stabilization policies : a quantitative analysis of South Korea (English)
Similar Titles
Material Type Articles
Author(English)

van Wijnbergen, Sweder

Publisher

World Bank (WB)

Date 1982
Language English
File Type Link
Subject Social Development < Education

Abstract

This paper presents a macro-model of the Korean economy that focuses on short-run macro-economic adjustment and, more in particular, on the transmission channels of monetary policy between the financial and the real sector of the economy. In addition to the usual link between monetary policy and aggregate demand via investment, the link between monetary policy and the supply side of the economy via the financing of working capital with borrowed funds is incorporated. This link can potentially reverse the short-run impact of tight money on inflation and aggregate the impact on output. Both export prices and domestic prices show a significant sensitivity to cost of financing working capital. This credit-supply side link gives a stagflationary bias to restrictive credit policies. The empirical relevance of this phenomenon is strongly supported by the simulation results derived with the model. Structurally, section 2 of the paper focuses on the real sector part of the model, section 3 discusses the financial sector. In section 4 different monetary stabilization packages are simulated using the model presented in sections 2 and 3, and alternative policy measures are discussed, the simulation runs show strong short-run stagflationary effects of tight money policies.