This paper sets up a sticky price model with external habit formations. It shows that the cross-correlation between output and interest rates as well as prices match the data well when there is habit formation. Consumption as well as output display a hump-shaped response to a positive monetary...

The recent financial crises have generated interest in the design of optimal monetary policy rules not only for the developed economies, but also for the emerging economies. In particular, many economists have argued that economic models should take financial market frictions more seriously to...

This paper investigates sources of business cycles in Korea to shed some lights on the effects of economic crisis and the role of financial frictions. For this purpose, it sets up a canonical international real business cycle model augmented by international financial market frictions as in...