This paper estimates and simulates a small open economy model for assessing Korea’s monetary and fiscal policy performance between 2005 and 2022. Bayesian estimation is applied to the model to obtain parameter values governing dynamic adjustments, and we identify which variables played pivotal roles in overall macroeconomic volatility during the sample period. In particular, we find that both foreign and domestic factors played key roles for adjustment of GDP growth, real bank lending and the real exchange rate. We assess the adjustment of key variables under optimally-designed policy rules. We find that the optimal Taylor rule policy is very similar to the estimated Taylor rule over the sample period. We find that the base paths are closer to the optimal paths than they are to the non-intervention policies for fiscal transfers and a pure inflation-targeting rule for the Taylor rule, without an output-growth response, for the whole sample period.