We build a simple New Keynesian DSGE model with a financial sector and examine if the Central Bank(henceforth CB)'s responding to shocks originating in the housing and/or financial markets improves social welfare. In order to do the analysis, we consider a Taylor-type rule and do simulations to find the coefficients of the rule that maximizes social welfare, that is, the weighted average of the welfares of the patient and impatient households. Based on the simulations, we find that (i) the CB's response to shocks originating in the housing market improves welfare by a small amount, while (ii) the CB's response to shocks originating in the financial market improves social welfare significantly; more specifically, social welfare increases by a factor of about four when the shocks originate in the lending rate and by more than 5 percent when the shocks originate in the deposit rate.

Ⅰ. Introduction 1

Ⅱ. Model 2

2.1 Household 2

2.1.1 Patient Household 2

2.1.2 Impatient Household 5

2.2 Goods Sector 6

2.2.1 Final Good Producers 6

2.2.2 Intermediate Goods Production 7

2.2.3 Pricing of Intermediate Goods 8

2.3 Financial Intermediation 9

2.3.1 Final Banking Sector 9

2.3.2 Intermediate Banking Sector 10

2.4 Monetary Policy 11

2.5 Aggregate Resource Constraint 12

Ⅲ. Calibration and the Model Characteristics 12

3.1 Calibration 12

3.2 Model Characteristics 13

3.2.1 Deterministic Steady State 14

3.2.2 Technology Shock 15

3.2.3 Monetary Tightening 16

3.2.4 Rise in the Loan to Value Ratio 16

Ⅳ. Optimal Implementable Taylor Rule 17

Ⅴ. Concluding Remarks 21

References 23

Appendix 25

Tables 27

Figures 30

Abstract in Korean 33