Contrary to the conventional view that oil price hikes hinder economic growth in Korea, a country heavily dependent on energy imports, our analysis shows that demand-driven global economic activity shocks can significantly boost industrial production. We find that other structural oil market shocks do not necessarily dampen aggregate economic activity. At the industry level, the mining and manufacturing sectors respond positively, while the construction sector is negatively affected only by oil supply shocks. These findings highlight the need to account for the structural sources of oil price fluctuations and sectoral differences when analyzing the oil-macro relationship in small open economies.

This paper investigates how structural oil market shocks transmit through real oil price changes to the U.S. core prices. Separating out the sources of oil price increases reveals that supply shocks lead to significant and persistent increases in core prices while oil inventory demand shocks pull them down. Other demand-driven shocks do not cause any significant core price fluctuations. Examining different sample periods, we find empirical evidence supporting the strengthening of the oil price pass-through to some degree since mid-1980; however, not much change in the pass-through has been observed since the outbreak of Covid-19. Our findings highlight that understanding the sources of oil price changes is crucial for gauging their impacts on core prices and furthermore, for the conduct of monetary policy. 

We study how international pricing regimes shape optimal monetary-fiscal policy mix during global liquidity trap episodes. Using a two-country New Keynesian model under alternative pricing assumptions, we find that when exchange rate pass-through is high, the less affected economy optimally raises interest rates to manage relative prices between countries, though at the cost of suppressing global demand. However, when pass-through is limited, it maintains low rates to support global demand instead. This monetary policy divergence widens with shock severity, reflecting that high pass-through makes exchange rate management a more effective tool for stabilizing relative prices, though at the cost of suppressing global demand. Fiscal policy complements monetary policy by addressing its limitations: under high pass-through, it focuses on expanding government spending across both countries to boost suppressed global demand, while under low pass-through, it implements asymmetric spending increases concentrated in the more affected country to correct relative imbalances. When there is dominant currency pricing, counterparty policy rates generally fall between high and low pass-through cases, but vary significantly with the shock’s origin due to asymmetric trade channels and monetary policy transmission.

This paper investigates how changes in information and communication technologies (ICT) affect skilled and unskilled labor differently at the business cycle frequency. To this end, we construct aggregate hours series for both labor groups using the monthly outgoing rotation group of the Current Population Survey spanning 1994 to 2022. Our empirical analysis, employing a structural vector autoregressive model, reveals that the two groups' working hours respond similarly to ICT innovations, both qualitatively and quantitatively. We demonstrate that our findings align with a dynamic stochastic general equilibrium model where ICT capital complements both skilled and unskilled labor. This contrasts with conventional literature, which typically posits that ICT capital complements skilled labor only, to account for observed long-term divergences in working hours of the two groups. Further simulation and estimation exercises suggest plausible ranges of key model parameter values regarding the elasticities of substitution, in line with our empirical findings. 

This paper examines the welfare cost of short-run fluctuations using a real business cycle model incorporating pollution and environmental policy; households derive utility from the quality of environment and firms pay green taxes to finance government expenditure for reducing pollution. We find that the taxation may result in short-run welfare gain, in addition to its long-run social improvement. Such short-run benefit of the environmental policies has not been documented in the previous literature. We further show that Ramsey taxation is more effective in mitigating the welfare cost.