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Informal Credit Markets and the Transmission of Monetary Policy: Evidence from South Korea
Author(s) -
Carpenter Seth B.
Publication year - 1999
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00071
Subject(s) - economics , monetary policy , mainstream , interest rate , monetary economics , bond market , vector autoregression , credit channel , macroeconomics , empirical evidence , inflation targeting , epistemology , philosophy , theology
This paper is an empirical investigation of the transmission of monetary policy in South Korea. It combines modern mainstream macroeconomics with aspects of a developing economy with financial dualism through a simple IS‐LM type model that explicitly incorporates an informal credit market. Vector autoregression analysis, with both semistructural and structural identifications, confirms the importance of a credit variable as a policy tool. The results show direct credit allocation by the central bank had a significant impact on output, prices, and the interest rate in the informal sector. Previous theoretical and empirical findings of “stagflationary” effects of monetary policy are refuted.