KEA RESEARCH

Introduction & History

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The Korean Economic Association was launched in Pusan on November, 30, 1952.

Greetings

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Welcome to the Korean Economic Association.
The Korean Economic Association (KEA) is the representative economic society with the longest history in Korea. As of 2021, the KEA has over about 5,000 individual members, consisting of professors and researchers, and about 60 institutional members. In order to promote development of economics field and research activities in Korea, the KEA publishes academic journals, holds academic conferences and enhances exchanges with research institutes and related associations. The KEA provides a platform where members of all regions and generations can share academic knowledge and research outcomes and prosper in solidarity.

KOREAN JOURNAL OF ECONOMIC STUDIES

Presidential Address : Major Economic Challenges of Korea

Jinook Jeong (Yonsei University)

Year 2022 / Vol 70 / No 1

In December 2021, the Korean Economic Association selected seven major challenges of Korean economy through a ballot of all its members. The selected challenges in order of the votes obtained are: 1) productivity improvement and innovation, 2) low fertility problem, 3) stabilization of housing market and a soft landing of housing price, 4) low potential growth rate, 5) household debt, 6) income inequality, 7) government debt. Overall, these challenges imply that Korean economy is in a serious crisis. Low productivity and low fertility seriously deteriorate the potential growth rate. Household debt and government debt due to housing price hike and high liquidity pose a substantial risk to the whole economy. As economic bipolarization worsens income inequality, Korean economy faces equity problem in addition to its efficiency decline. This paper evaluates these challenges and surveys the literature. 

Changes in the Macroeconomic Relationships among Output, Employment and Prices

Junseok Lee (Seoul National University), Yongsung Chang (Seoul National University) and Youngdoo Choi (Seoul National University)

Year 2022 / Vol 70 / No 1

We study two important relationships in macro economic analysis: (i) co-movment between output and employment (the so-called Okun’s law) and (ii) the trade-off between inflation and unemployment rate (the Phillips Curve). We find that there have been important changes in these relationships in the last 30 years in both U.S. and South Korea. The co-movment between output and employment has weakened significantly, often coined as the “jobless recoveries.” The Phillips Curve has shifted as well. In particular, the slope has flattened over time and even becomes a negative since 2000 in Korea and since 2010 in the U.S., respectively. We argue that these changes present a big challenge to policy makers. 

The Consumption Effect of the Emergency Income Aids in 2020: Evidence from the Household Income and Expenditure Survey

Woojin Lee (Korea Univeristy), Changhui Kang (Chung-ang University) and Seokjin Woo (Myongji Univeristy)

Year 2022 / Vol 70 / No 1

This paper examines the effectiveness of the government’s large-scale income support policy by estimating the consumption effect of the emergency income aids that the Korean government paid to its households in the second and third quarters of 2020. Unlike the previous studies, which use information on credit card transactions, this study employs the Household Income and Expenditure Survey dataset provided by the National Statistical Office; the latter measures the total amount of household consumption more accurately than the former.Our difference-in-difference estimates suggest that the marginal propensity to consume (MPC) of the emergency aids ranges between 0.362 and 0.421 in the second quarter and between 0.401 and 0.481 in the third quarter of 2020. The MPC estimates for the entire period (the second and third quarters in total) range between 0.654 and 0.782. In magnitude, the MPC estimates of this paper lie in the middle among the estimates reported by the previous studies in Korea, and are similar to the MPC estimate (0.666) based upon the 2001 federal income tax refund of the United States.

KOREAN ECONOMIC REVIEW

Consumption Response to Seoul’s COVID-19 Shopping Coupons: Evidence from Consumer Data (Covid-19 Special Issue)

Seokjin Woo (Myongji University), Sangmin Aum (Kyung Hee University), Dohyung Kim (Myongji University), Heyjin Moon (Seoul Welfare Foundation) and Soohyung Lee (Seoul National University)

Year 2022 / Vol 38 / No 2

This study measures the extent to which Seoul’s COVID-19 shopping coupon program affects individuals’ consumption. Unlike other COVID-19-related transfer programs, the Seoul Metropolitan government provides consumption coupons depending on income. We quantify the causal effect of Seoul’s program by comparing eligible and ineligible groups using a difference-in-differences method. We find that the program increased consumption by 18% while it was ongoing and by 6% afterward. We find substantial heterogeneity in the treatment effects concerning recipients’ income and consumption categories. 

Understanding Precautionary Behavior in the Time of COVID-19 (Covid-19 Special Issue)

SeEun Jung (Inha University) and Sang-Hyun Kim (Yonsei University)

Year 2022 / Vol 38 / No 2

Compliance with the public health authority guidelines is crucial to prevent the spread of COVID-19 successfully. By analyzing individual responses to a survey, we identify the weakest links, i.e., those who do not follow the guidelines as much as others do, and why they are failing. We find that individuals older than 60 are most enthusiastic in protecting their and others’ health and that those younger than 30 are least enthusiastic. We categorize the factors possibly influencing the precautionary behavior into three groups: preference, belief, and constraint. It turns out that although beliefs on the effectiveness of protective measures do predict individual differences in their endeavors, they do not vary significantly across gender and age groups. On the other hand, risk, time, and social preferences explain individual differences well and significantly differ across gender and age groups. We also derive an implication for managing long-term risks due to fatigue and depression. 

What are the Driving Forces of the Economic Downturn in Korea during COVID-19? (Covid-19 Special Issue)

Sanha Noh (Jeonbuk National University) and Ingul Baek (Kongju National University)

Year 2022 / Vol 38 / No 2

We investigate the main driving forces of business cycles and heterogeneity across industries during the COVID-19 crisis in Korea. We build a small open economy model, solved up to the second-order, to fit the stylized facts of business cycles and employ several structural shocks as candidates of driving forces. In contrast to the financial crisis in 2008, the transitory productivity shock is the predominant source, but the permanent productivity shock is assigned less importance during the pandemic. In addition, negative preference shocks rapidly reduce consumption in 2020Q1 and bounce back with upward pressure on consumption growth in 2020Q2 over the pandemic cycle. The service sector, especially accommodation and food, is the most adversely affected by structural shocks at the onset of the COVID-19 outbreak. 

KOREAN ECONOMIC FORUM

Policy Recommendations for the Elderly Labor Market Through a Review of the Age Discrimination in Employment Act in Korea

Jaekyeong Kim (SUNY Buffalo), Yonghun Jung (Korea University) and Seong-Hoon Lee (Korea University)

Year 2022 / Vol 15 / No 1

As Korea enters a super-aged society, the importance of the Age Discrimination in Employment Act and Elderly Employment Promotion Act (Age Discrimination Act) is increasing. Therefore, this study investigates the existence and characteristics of age discrimination practices in the elderly labor market and indirectly examines the effect of the Age Discrimination Act on the labor market of the elderly using domestic and foreign studies. In addition, this study identifies the limitations of the current Age Discrimination Act from a legal point of view and suggests ways for the Age Discrimination Act to promote the labor activity of the elderly effectively. According to the result, we find that the effect of Age Discrimination act on the employment of the elderly is positive, but the size is relatively small compared to other countries. To eradicate age discrimination practices, the revision of the Act should include simplifying administrative procedures, allowing third parties to file complaints, and explicitly stipulating the burden of proof. Although this study has a limitation as a qualitative study based on the existing studies and statistical data, it encourages further research on age discrimination and the effectiveness of the Age Discrimination Act by examining the challenges encountered in the existing studies and how to resolve them. 

Monetary Policy in the Presence of Household Loan Regulation

Byoung Hoon Seok (Ewha Womans University)

Year 2022 / Vol 15 / No 1

This study quantifies the effect of an increase in the nominal interest rate on key macroeconomic variables in Korea by using a Dynamic Stochastic General Equilibrium (DSGE) model with a housing market and collateral constraints. The results indicate that if the nominal interest rate is raised by 0.5% points per year, the real housing prices fall by 0.08% compared to the steady-state level, while household debt decreases by 1.4%. I also show that tightening lending rules by reducing the loan-to-value ratio or introducing debt service ratio limits slightly strengthen the impact of the increased nominal interest rate on housing prices. 

Problems and Corrections of the Household Income and Expenditure Survey

Nak Nyeon Kim (Dongguk University)

Year 2022 / Vol 15 / No 1

Since the Household Income and Expenditure Survey is designed as rotation sampling in which a certain percentage of the sample is replaced every month, the number of months each sample is surveyed in a year spans 1-12 months (1-6 months after 2020). Statistics Korea calculates quarterly or annual statistics by simply averaging the survey results for the month from monthly data. This is fine for items with similar recurring monthly expenditures, but distortion occurs for items that do not. Depending on the number of months surveyed and the frequency of purchase of items, the annual statistics tend to be exaggerated by up to 12 times (three times in the case of quarterly statistics) than the actual ones, while items not purchased in the survey month are completely omitted from the survey. When calculating the overall average, it was found that such overestimation and underestimation due to omission offset each other. However, the average per household is not, so the consumption gap between households is wider than it really is, and the distortion has grown bigger in recent years. In this paper, the bias of items consumed by each household included in the annual data for 2015-16 and 2019-20 was corrected in a reasonable way, and the results were compared with the existing micro data.