Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Currency Crisis and Potential Growth Rate of Korea

Vol.16, No.3, September , 77–97


English Version |  Korean Version
  •   (Yeungnam University)

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Abstract  

To investigate how Korea's potential to grow has been affected by the 1997 currency crisis, this paper estimates its potential growth rates over time, using an unobserved components model. Unlike existing studies, the model accounts for heteroskedasticity to make an efficient use of information contained in GDP growth rates, and the parameter determining the extent of time variation in potential growth rates is estimated free of bias. For 1970-2004, (1) there is strong evidence that the potential growth rates become more variable due to the crisis, (2) the estimates of post-crisis potential growth rates are lower than those of crisis period, suggesting that the crisis has had an adverse impact on Korea's potential to grow, and (3) the average of post-2000 potential growth rate estimates is about 3.7%, indicating that policy authorities and private research institutes have been too optimistic about Korea's potential to grow.


Keywords
   Potential Growth, Currency Crisis, Unobserved Components Model

JEL classification codes
   O4
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