A Rational Expectations Equilibrium Model of the Business Cycle: Some Further Evidence for Korea 1970:1-1990:4

This paper tests the rational expectations equilibrium model of the Korean busi-ness cycle in which unpredictable monetary growth affect the unemployment whereas both predictable and unpredictable monetary growth influence the price level. The model is estimated by using both OLS and efficient estimation procedures. The em-pirical results show that in the framework of rational expectations the unpredictable movements in the domestic money supply do cause fluctuations in the macroecono-mic variables such as the unemployment and price level.