Abstract | PDF (1456 kilobytes)

No abstract is available for this article.

Abstract | PDF (2819 kilobytes)

The goal of this paper is to develop a dynamic stochastic general equilibrium model for declining urban cities in Korea. The need for the DSGE model analysis to account for shrinking citie in Korea can be justified for the following two reasons. First, rises and falls of individual cities reflect multi-lateral interactions of different cities in Korea. Second, both idiosyncratic factors of individual cities and macroeconomic factors play important roles in the determination of the population distribution across different cities in Korea. It is shown that the deepening of shrinkage of small Korean cities can arise during the transition period toward the long-term steady state with a low rate of economic growth.

Abstract | PDF (3729 kilobytes)

We empirically estimate the effects of expansionary fiscal policy in Korea to analyze the impacts of the fiscal policy with different exchange rate regime. First, we empirically estimate the Structural VAR to identify the transmission mechanism of major macroeconomic variables from government expenditure shocks in Korea. The government expenditure shocks increase consumption, investment, and GDP. At the same time net exports decrease and foreign exchange rates depreciate in the long run. Second, we set up a small open economy model with financial frictions and discuss the role of financial market frictions in generating a multiplier of government expenditure under PEG and flexible exchange regime. Extended the existing literature on fiscal policy by introducing limited asset market participation and external finance a la Bernanke et al. (1999) into the model. Shown that the multiplier can be larger than one under pegged exchange rate regime, while is smaller than one under flexible exchange rate regime.

Abstract | PDF (3464 kilobytes)

We provide an assessment of the performance of an Engel curve methodology for estimating spatial price indices. We use a unique spatial price data and two conventional price index computation methods, binary Tornqvist and weighted country product dummy method for an ideal assessment of a spatial Engel curve. Poor performance of spatial Engel curve method for estimating spatial price indices implies a strong need for collecting direct spatial price data for calculating spatial price indices. We also provide some implications of a precise measurement of spatial price indices in implementing real inequality and poverty related policies.

Abstract | PDF (2924 kilobytes)

This paper constructs a monthly financial effective exchange rate index of Korea and investigates the relationship between the financial effective exchange rate and the external position and that between the financial effective exchange rate and capital flows. It turns out that sometimes the exchange rate index and the traditional BIS trade-weighted index move in opposite directions. The relative volatilities of the two indices are also different. The net foreign exposure of Korea as of 2014 shows that a 1% depreciation of the Won results in a 0.48% increase in the valuation of the external position. Empirical results show that the increase in the rate of change of the financial effective exchange rate significantly leads to capital outflows, especially in portfolio investment and bond investment in particular. The use of the financial effective exchange rate is better equipped than the traditional trade-weighted exchange rate in explaining and estimating the wealth effects of the changes in net external positions.

Abstract | PDF (2785 kilobytes)

This paper introduces a notion of near-autarky to describe the following features of North Korean economy: economic sanctions, more than 40 percents of trade dependency, chronic trade deficits, and monopolistic trade with China. The model in this paper is a dynamic stochastic general equilibrium(DSGE) model modified to incorporate the above features. The result show that North Korea have no incentive to deviate from the current situation. And also the fact that North Korea's biggest trade partner is China weakens the effectiveness of economic sanctions against North Korea.

Abstract | PDF (2891 kilobytes)

This paper investigates whether the linkages between foreign affiliates in Korea and their parent companies is a key factor in explaining transmission of foreign shocks from 2006 to 2015 using firm-level data. We try to answer this question by empirically examining the relationship between the performance of foreign affiliates located in Korean and their parent companies. The empirical results show that growth in parent country (the location of parent company) has negative impact on the growth in foreign affiliates in Korea rather than contribute to increase in foreign affiliates performance. This result means that negative foreign shocks may not contribute to decrease in GDP growth rate or does not have negative impact on domestic business cycle. We interpret this result as an evidence that the linkages between foreign affiliates in Korea and their parent companies may not be a key factor in explaining transmission of foreign (oriented) shocks in case of Korea.