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

Volume 26, Issue 1 (March 2015)

Cover Pages
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The Relevance of the Fiscal Theory of Price Level in Korea, Pages 1–34

Yeji Sung, Jae Won Lee, Jungsik Hyun, Jung Yi Hong

Abstract | PDF (1117 kilobytes)

This paper estimates a small-scale New Keynesian DSGE model using Bayesian methods to address the question of what monetary and fiscal policy regimes characterized the recent Korean data after 2000. We find that a passive monetary policy and an active fiscal policy prevailed. This finding implies that the Fiscal Theory of Price Level (FTPL) is relevant in understanding the dynamics of the key macroeconomic variables in Korea.

Investment Opportunity Shifts, Funding Constraints, and Business Fluctuations, Pages 35–69

Won Jun Nah

Abstract | PDF (1667 kilobytes)

This modelling research explores the potential effects on business fluctuations of exogenous shifts in investment opportunities under financial constraints. To this end, this paper newly defines, within the framework of two-sector model, the concepts of "level shock" and "variation shock" of investment opportunities, both inherent in the capital-good producing sector. These shifts are orthogonal to the typical total factor productivity shock in the consumption-good producing sector, in the sense that the former may drive changes in investment through substitutions between consumption and investment in the absence of the latter. Impulse-response analyses reveal that investment opportunity shifts are clearly distinct from the usual productivity shifts concerning the business cycle effects. Both the redistribution of wealth between savers and investors and the constraints on outside funding seem to play important roles in the propagation of investment opportunity shifts. Also it is found that the effects of the shifts are more amplified and to become more persistent when the asymmetry in investment opportunities among entrepreneurs are more severe.

Investigation into the compatibility of stationarity of short-term interest rate proxies with the dynamic term structure models of interest rates, Pages 70–126

TaeHyung Kim, Jeongmin Park

Abstract | PDF (1624 kilobytes)

By building on the work of Conley et al. (1997), we investigate the stationarity of riskless short-term interest rate processes, analyzing generalized stochastic volatility models with level effects and examine the compatibility of stationarity of short-term interest rates with the popular dynamic term structure of models of interest rates, such as ATSM and QTSM. We extend extant stochastic volatility models with level effects crucial in characterizing the stationarity of a continuous time stochastic process, estimate the extended models using an efficient simulation-based MCML(Monte Carlo Maximum Likelihood) estimation method using importance sampling and implement model diagnostics using the inverse of standard normal distribution of the dynamic probability integral transform obtained via an auxiliary particle filter. Empirical estimation results indicate that TB3M and Call1d exhibit drift-induced stationarity compatible with both ATSM and QTSM, and that ED1M, KTB3M, MMF7d, CD91d and CP91d are of volatility-induced stationarity. Consequently, the results imply that, without careful consideration for the nature of stationarity of a short-term interest rate, indiscriminate application of theoretical models assuming the drift-induced stationarity of short-term interest rates may cause serious failure in derivative pricing and risk management.

Application of Dynamic Macroeconomic Models with Nominal Price Rigidity to the Actual Data of Public Utility Charges in Korea, Pages 127–153

Mi Young Ho

Abstract | PDF (1534 kilobytes)

In this paper, I develop dynamic stochastic optimizing models for public utility charges, taking into account the actual behavior of individual public utility charges in Korea. The compensation rate for the total average cost has been greater than one only for public utility services provided to households, reflecting government's regulations on public utilities. The analysis of this paper opens the possibility that existing dynamic pricing models with nominal price rigidity can be extended to explain the actual behavior of public utility charges in Korea.


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