International Macroeconomic Fluctuations in Korea
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This paper examines international macroeconomic fluctuations in Korea by focusing on the sources of fluctuations in key international macro variables, such as cross-country output differential, real exchange rate, and trade balance and international transmission of key structural shocks. These structural shocks include country-specific supply, demand, and nominal shocks. A structural VAR model with long-run restrictions (that are consistent with many theoretical models) is constructed to investigate these issues. The main findings are: (1) supply shocks explain most of the fluctuations in cross-country output differential; (2) all three types of shocks play a non-negligible role in explaining fluctuations in real exchange rate and trade balance; and (3) demand and supply shocks generate opposite signs of correlation between trade balance and real exchange rate.
Abstract
This paper examines international macroeconomic fluctuations in Korea by focusing on the sources of fluctuations in key international macro variables, such as cross-country output differential, real exchange rate, and trade balance and international transmission of key structural shocks. These structural shocks include country-specific supply, demand, and nominal shocks. A structural VAR model with long-run restrictions (that are consistent with many theoretical models) is constructed to investigate these issues. The main findings are: (1) supply shocks explain most of the fluctuations in cross-country output differential; (2) all three types of shocks play a non-negligible role in explaining fluctuations in real exchange rate and trade balance; and (3) demand and supply shocks generate opposite signs of correlation between trade balance and real exchange rate.
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