The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach

This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.