Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society

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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society

Journal of Economic Theory and Econometrics (JETEM) is a peer-reviewed, internet-based, open-access international journal aiming to publish high-quality papers in all areas of economics. JETEM is the official publication of the Korean Econometric Society, carrying papers written either in English or in Korean. In this web-site, all English articles are fully downloadable free of charge; for Korean articles, only the title and the abstract in English are provided along with a fee-based link to the full text.

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Recently Published Articles

Volume 31, Issue 2 (June 2020)

Abstract | PDF (860 kilobytes)

No abstract is available for this article.

The Effect of Population Composition by Age on Government Spending Policy, Pages 1–18

Hosin Song, Jisu Hwang

Abstract | PDF (156 kilobytes)

There is a recurrent assertion that the elderly want more public resources to be spent on social protection and health, the young want more on education, and such preferences are reflected in the actual government spending policy. This study aims to empirically confirm whether the assertion is valid in OECD countries. For that goal, we propose an estimation method to exploit the comparison of the actual share of government expenditure and its theoretical share by using aggregate data. The empirical finding is consistent with the recurrent assertion in the sense that the fraction of the young has a significantly negative effect of the spending share of social protection and health but a positive effect on the spending share for education even though we can not find a significant effect of the elderly. In particular, ageing leads to a smaller fraction of the young and a larger fraction of the elderly. Hence, the empirical finding predicts that the ageing trend is likely to bring more public resources to the social protection and health areas, and less public resources to education.

Does Credit Supply Accelerate Business Cycle Changes in Korea?: Some New Evidence by Incorporating Regime Changes, Pages 19–39

Sei-Wan Kim, Jinill Kim, Jungsoo Park

Abstract | PDF (220 kilobytes)

This work empirically investigates how commercial banks' aggregate credit supply is associated with business cycle over different regimes of the Korean economy. Linear empirical models employed in most of previous studies are subject to a potential missapecification problem because it is well known that both real GDP and credit supply reveal different dynamic properties over different regimes. This work finds that credit supply has asymmetric effect on business cycle for expansion and contraction phases when the Smooth Transition Autoregressive Vector Error Correction Model (or STAR-VECM) is employed. Our empirical findings are as follows. Firstly, we find that credit supply has procyclical effect on real GDP in all phases. Secondly, the procyclical effects are significantly intensified especially in contractionary phases which indicates asymmetry of its effect. In sum, this result supports 'Credit Acceleration Hypothesis' of Bernanke et al. (1999). Lastly, we further find that real GDP has asymmetric effects on banks' credit supply with countercyclical effect on expansionary regimes.

Natural Interest Rate, Potential GDP Growth Rate and Long-Term Monetary Policy Stance, Pages 40–69

Seonghoon Cho

Abstract | PDF (4758 kilobytes)

The natural rate of interest is the real interest rate that would prevail when the macro economy is in its natural, long-term equilibrium at which the actual GDP growth rate equals its potential rate. The natural rate of interest should therefore comove with the long-term trend of the potential GDP growth. In addition, since monetary policy authority has a significant impact on real interest rates, the difference between real and natural interest rates can be the basis for determining the long-term policy stance for the real sector of the economy. This study estimates potential growth rates and natural interest rates in Korea and the United States based on the Holston et al. (2017) model with important adjustments. We use the real market interest rate faced by economic agents, which may be different from the traditional real rate computed using the policy rate. Also, GDP per capita is considered, which is theoretically more suitable when population growth is taken into account. The estimation results using these new measures and the associated adjustment in the model reveal that the estimated natural rate of interest captures the theoretical characteristics of the natural interest rate better than the estimate using standard real interest rate. In addition, since the 2000s, Korea's real rate was much lower than the estimated natural interest rate, suggesting that the long-term monetary policy stance in Korea might have been strongly accommodating.

Term Premia in Affine Term Structure Models with Unspanned Macroeconomic Factors: the Case of Korea, Pages 70–110

Jaeho Yun

Abstract | PDF (3906 kilobytes)

Using the yield data for Korean government bonds, I examine several discrete-time affine term structure models with unspanned macro factors, such as output and inflation, and compares term premia implied from alternative models with different combinations of output and inflation variables. Empirical analysis shows that, except for 1-year maturity ones, there is little difference among the medium- to long-term term premia across alternative models. The model-implied term premium estimates do not show a significant pro- or counter-cyclicality in relation to output variables, but show a highly positive correlation with inflation variables. In addition, I test the traditional expectation hypothesis by fitting Campbell-Shiller long-rate regressions to the Korean bond data, the expectation hypothesis is strongly rejected as in the case of the US, due to time-varying term premia, and an additional Monte Carlo simulation study indicates that the term structure models considered in this paper show a success in matching the regression coefficients estimated from the sample.


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