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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Thank you for your support for the Korean Economic Association (KEA). The KEA has been representing Korean economists for the last 70 years. Now we have about 5,000 members including more than 1,000 life members.

KOREAN JOURNAL OF ECONOMIC STUDIES

Analysis and Verification of the Leverage Effect of Chonsei under Low Interest Rates

Jongeok Son (Seoul National University)

Year 2021 / Vol 69 / No 4

The housing purchase utilizing Chonsei as leverage yields an excess return under low interest rates since the 2000s. I present a simple static model toanalyze the impact of Chonsei leveraged investment on housing market. Especially, I analyze the choices of demanders and changes in prices subjectto income constraint by introducing the income distribution of demanders. Since the Chonsei leveraged investment creates demand in housing market and supply in Chonsei market simultaneously, it forms a negative correlation between purchase and Chonsei prices. I tested the negative correlation and estimated the parameter that measures the size of Chonsei leveraged investment.

Identifying Monetary Policy Shocks Using High Frequency Data: Evidence from Korea -Focusing on the Central Bank Information Effect Contained in Monetary Policy-

JoongSeop Ahn (Bank of Korea), JooWan Kim (Bank of Korea) and ByungHo Lee (Bank of Korea)

Year 2021 / Vol 69 / No 4

This paper analyzes the effect of monetary policy using high frequency data of the financial market on the day of the Bank of Korea MPB's policy-settingmeetings. We calculated “Surprise” of the financial market which occurred immediately after the announcement of the Bank of Korea Base Rate. Then weidentified monetary policy shocks by purging the “Central Bank Information Effect” from the Surprise following Jarociński and Karadi (2020). We found thatthe monetary policy shock contracted the real economy, while the information shock expanded the real economy. These results imply that despite concernsabout the effect of monetary policy raised after the Global Financial Crisis, the transmission of monetary policy in Korea is still valid.

Analysis of Business Cycle Synchronization between Korea-US, Korea-China, and Korea-Japan

Keun Yeong Lee (Sungkyunkwan University) and Nam Hyun Kim (Korea Deposit Insurance Corporation)

Year 2021 / Vol 69 / No 4

As a result of empirical analysis using annual data and a two-phase regime switching model with time-varying coefficients of synchronization, the upwardtrend of synchronization in Korea-China is much greater than in Korea-US or Korea-Japan. Also, unlike the latter case, where the recent decline inco-movement occurs around 2010, in the former case, it appears after 2016. In the case of Korea-US and Korea-Japan, the positive correlation between eachcountry’s share of imports and exports in Korea’s total trade and the co-movement coefficient was high between 1981 and 2000, while in the caseof Korea-China, it was high between 2000 and 2019. In addition, when the total trade ratio to GDP of Korea is used, the positive correlation between them over the entire period is high regardless of the country. On the other hand, since 2010, the growth rate of US direct investment in Korea and the share of theUS in total direct investment in Korea have declined along with the probability of business cycle synchronization.

KOREAN ECONOMIC REVIEW

How Effective are Automatic Stabilizers in Reducing Aggregate Volatility in Korea?

DongIk Kang (Korea Institute of Public Finance) and Jinhee Woo (Soongsil University)

Year 2022 / Vol 38 / No 1

We quantified the contribution of automatic stabilizers on business cycle volatility using a heterogeneous agent New Keynesian model, which is calibrated to match important features of the Korean economy. We find that reducing unemployment benefit expenditures by 0.2% of the GDP increases its volatility by 0.24%. Reducing social transfers by the same amount increases the volatility by 1.49%. Lowering the tax rates of income tax, corporate tax, and VAT have little effect on aggregate volatility. A flat income tax increases the volatility of GDP by 3.49%. Simultaneously reducing unemployment benefit expenditures, social transfer expenditures, income tax revenue, corporate tax revenue, and VAT revenue each by 0.2% of the GDP increases the business cycle volatility by 1.56%. In the case of Korea, the stabilization effect of automatic stabilizers seems to be small. 

Import Variety and Productivity: Positive or Negative?

Kichun Kang (Yeungnam University)

Year 2022 / Vol 38 / No 1

After heterogeneous firm trade models launched in the mid-2000s, the positive effect of import variety on productivity is well-established. However, using industry sectoral data for South Korean 16 regions from 2000 to 2017, this study explores heterogeneous productivity gains from import varieties across industry sectors and identifies negative productivity gains, especially in final consumption goods. 

Efficiency or Equity? Determinants of Regional Allocation of Infrastructure Investment in the Republic of Korea

Jongyearn Lee (KDI School of Public Policy and Management)

Year 2022 / Vol 38 / No 1

We used a structural model to determine which aspects of efficiency and equity criteria were advocated in allocating investment in transportation infrastructure by region in the Republic of Korea during the period of 2001–2014. The estimation by the generalized method of moments indicated that the country’s regional allocation of public investment favored equity enhancement rather than efficiency gain. Empirical findings also include evidence of the substitutionary relationship between the investments by the central and regional governments, as well as the excess capital stock of transportation infrastructure compared with the optimum. The infrastructure needs and regional financial conditions had limited effects on the past allocation of investment. Political influence was exerted with respect to electoral productivity rather than partisanship. 

KOREAN ECONOMIC FORUM

Development of Korea’s National Health Insurance System: Political Economy and Macroeconomic Considerations

Joon-Kyung Kim (KDI School of Public Policy and Management) and Jun Il Kim (IMF)

Year 2021 / Vol 14 / No 3

Korea’s national health insurance system (NHIS), which played a pivotal role in responding to the COVID-19 pandemic, has been considered as one of the most efficient and affordable public health insurances in the world. This case study is a historical account of political economy and macroeconomic considerations involved in the development process of NHIS. Since first instituted in 1977 for workers in large firms only, NHIS has expanded rapidly and in several steps to cover the entire population by 1989 and achieve maximum risk pooling and adequate social equity by 2000. Underlying such apparent success were the government’s commitment to fiscal prudence, balanced considerations on affordability and social equity, adequate government control on health cost, and political democratization.

Fiscal Policy in Post Covid 19 Periods

Jong-Suk Han (Ajou University)

Year 2021 / Vol 14 / No 3

This paper suggests the mid-term fiscal plan to recover fiscal sustainability after the massive government expenditure reacting to the Covid-19. We conduct the debt sustainability analysis to examine the main driving forces for the government debt increase. As expected, the primary deficit mostly drives the debt increase; meanwhile, the low interest rate environment does not provide alarge fiscal space in Korea. Using the debt dynamics, we project the debt trajectory from 2026 to 2030. Our analysis suggests that the overall balance deficit should be set around 2% to carry out the recently proposed fiscal rule.

International Comparison of Distribution and Allocation of Cognitive Skills

Yoonsoo Park (Sookmyung Women’s University)

Year 2021 / Vol 14 / No 3

This study compares the distribution and allocation of cognitive skills of 16-65 year old population in 33 countries including Korea. Comparing the distribution of cognitive skills by country reveals that Korea ranks higher at the bottom of the skill distribution but ranks lower at the top of the distribution. Comparing the allocation of cognitive skills between public and private sectors by countryshows that the cognitive skills of public sector workers tend to be higher than that of private sector workers in Korea and that the superiority of the public sector workers in Korea is evident at the top of the skill distribution. These results suggest that Korea has fewer high-skilled workers compared to major countries, and that in Korea, high-skilled workers are mainly allocated in the public sector.