Estimation the Natural Output Korea: A Bayesian DSGE Approach.

Abstract

This paper attempts to estimate the natural rates of output and interest of Korea in a simple DSGE set-up with a few stylized New Keynesian features using Bayesian methods. The major findings of this paper are as follows. First, the estimates of output gaps are less volatile than the measures from conventional approaches, although they exhibit non-negligible variations depending on the model specification. Another key finding is that the hybrid type Phillips curve with a backward-looking component and/or habit formation in consumption may play an important role in characterizing the macroeconomic dynamics of Korea.

Keywords: Natural output, Natural rate of interest, DSGE model, Bayesian estimation

JEL Classification: D11, H21, H26, H31