Three Essays on Effects and Responses of Monetary Policy

My dissertation consists of three chapters which investigate effects and responses of monetary policy. The first and third chapter study how effects of monetary policy differ according to timing of monetary shocks when price and wage rigidity has seasonality. The second chapter studies responses of monetary policy to exchange rate movements using the small open economy DSGE model. The first chapter shows that monetary policy in Korea is more effective in the 2nd half than the 1st half. Intensive wage renegotiations in spring in Korea lead into stronger wage rigidity in the 2nd half. Stronger wage rigidity in the 2nd half causes monetary policy to be more effective in the 2nd half. Thus, results in the first chapter corroborate findings of Olivei and Tenreyro (2007) and Olivei and Tenreyro (2008), who claim that monetary policy is more effective if monetary shocks occur in the period when wage rigidity is strong. The second chapter shows that the central bank in Korea, the Philippines and Thailand responds differently to exchange rate movements during post-Asian crisis period. That is, the Bank of Korea reacts relatively weakly to exchange rate movements while the Banko Sentral ng Philippines reacts relatively strongly to exchange rate movements. This chapter also shows that the behavior of the Bank of Korea differs across the Asian crisis. The Bank of Korea responds stronger to inflation rates but weaker to exchange rate movements. These results are consistent with the policy regime change in Korea after the crisis - the switch to free floating exchange rates and the introduction of inflation targeting. In the third chapter, I develop the quarter-dependent DSGE model which has quarterly different price and wage rigidity. Calibration of the model shows that wage rigidity is more influential in determining effects of monetary policy than price rigidity. Thus, quarterly different effects of monetary policy in the U.S shown in Olivei and Tenreyro (2007) are mainly due to wage rigidity. Estimation results show that wage rigidity in the U.S. has seasonality. Wage rigidity is strong in the 2nd quarter but weak in the 3rd quarter. However, price rigidity does not have any seasonality