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

How to Promote the Commercial Popularity of the Korean Professional Baseball League: A Game-Theoretic Approach Surrounding the Procedure Operating Its Postseason

Jeong Eui Suh (Bank of Korea)

Year 2022 / Vol 70 / No 3

Recently, mainly regarding the decrease in the number of spectators, there have arisen rather serious concerns about the commercial popularity of KBO(Korea Baseball Organization) League. However, it must be clear that KBO League, like the U.S. MLB, has the potential to have a significant positive effect on the Korean domestic economy. Therefore, in this study, attention was paid to the possibility that the overall commercial popularity of the KBO League will be promoted if the postseason of the KBO League gets more popular among Korean people. Specifically, based on a game-theoretic approach, a certain way to increase the popularity of the postseason has been investigated. As a result of the analysis, it has been found that obtaining the consent of all teams in the KBO League in order to change the procedure of operating the KBO postseason is not easy in that the existing procedure is highly advantageous for the top team in the regular season. This implies that it should be necessary to reduce the opportunity cost of the top team in the regular season as much as possible if the postseason operating procedure is to be changed to promote the overall commercial popularity of the KBO League. 

Measuring Markup Dispersion in South Korea and the Implication for Monetary Policy

Yungu Cho (Bank of Korea), Bokyung Kim (Bank of Korea) and Hyuntae Kim (Bank of Korea)

Year 2022 / Vol 70 / No 3

This study cross-verified whether the gap in markup between leading firm and following firm has continued to widen since mid-2000s using various datasets. We also presented empirical evidence that the heterogeneity of the effect of monetary policy on firm’s investment decisions can be exacerbated by the increase in the dispersion of firm’s market power. The results are as follows. First, the markup dispersion of firms in South Korea has been continuously widened since mid-2000s. By industry, the widening of the gap was noticeable in the non-manufacturing sector, and the manufacturing sector remained relatively stable. Second, this gap in market power was found to be related to the heterogeneity of the effect of monetary policy among firms. This result suggests the possibility that the heterogeneity of monetary policy effects on firms has been further expanded due to the continuously widening gap in markup among firms. 

Can Job Turnover Help Young Korean Workers Climb the Wage Ladder?

Taehee Oh (Bank of Korea) and Jangyoun Lee (Incheon National University)

Year 2022 / Vol 70 / No 3

This paper studies the effect of job turnover on wage growth for young Korean workers using the Youth Panel over the period of 2007-2019. Our empirical findings highlight that if a young employee whose work experience is less than three years moves a job voluntarily, the hourly wage increases by 3.3-4.0 percent, and the annual rate of wage growth increases by 0.1-0.8 percentage point (the so-called “wage-ladder effect”). These results imply that job turnover of young Korean employees not only alleviates labor market mismatch, but also contributes to improve human capital formation by helping them find more suitable jobs and boost their job performance. 

KOREAN ECONOMIC REVIEW

Utility Curvature and Unemployment Volatility

Dongweon Lee (Bank of Korea) and Yena Park (Seoul National University)

Year 2022 / Vol 38 / No 3

Can we resolve the unemployment volatility puzzle (Shimer 2005) despite the cyclical opportunity cost of employment? Chodorow-Reich and Karabarbounis (2016) found that the opportunity cost of employment is highly procyclical, which poses significant challenges to the models of labor market fluctuations. Introducing procyclical opportunity cost inevitably weakens wage rigidity regardless of the exact types of wage bargaining, and it dampens the labor market volatility. We study the roles of the utility curvature and the intensive margin of labor supply, which not only induces the opportunity cost of employment procyclical but also generates additional sources of labor market fluctuations - cyclical stochastic discount factor and hours worked. Our model with alternating-offer wage bargaining can replicate the observed labor market volatility, with the help of high elasticity of intertemporal substitution, despite the cyclical opportunity cost of employment. 

College Majors in Limited Supply: The Case of Private Universities in Korea

Joseph Han (KDI)

Year 2022 / Vol 38 / No 3

The distribution of college majors often shows signs of rigidity despite evident changes in the world of work. As a possible explanation for the distribution rigidity in the Republic of Korea, this study focuses on supply-side restrictions, specifically a region-based cap on university enrollment. Using the national-level demand change for each major as an instrument for program-level demand change, this study finds a systematic difference between regulated and unregulated private universities in the responsiveness of program size to student demand. Analyses using sharp changes in regulatory status confirm that the enrollment regulation slows internal adjustments, showing the need for regulatory reform. 

Currency Bias of Sovereign Wealth Fund Investments

Heeho Kim (Kyungpook National University), Sanguk Kwon (Korea Rural Economic Institute) and Youn Seol (Kyungpook National University)

Year 2022 / Vol 38 / No 3

This study provides an alternative explanation for the poor performance of sovereign wealth fund (SWF) investments based on key currency bias. Using the international portfolio rebalancing model and the matched firm data of 18,704 and 8,267 cases of SWFs’ cross-border investment during 1999–2017, evidence strongly supports the key currency bias hypothesis for the determination of SWFs’ cross-border investments. In sharp contrast to the relationship between the exchange rate and international portfolio flows, the economic rationale for the currency bias is to provide hedging against the exchange risk of SWFs’ cross- border investments by matching the denominated key currency of the SWF sources with the other denominated currency of foreign target assets. This study complements the existing finance literature by providing portfolio implications for analyzing cross-border investments by commercial institution investors and portfolio rebalancing of financial assets between different currency zones. 

KOREAN ECONOMIC FORUM

The Macroprudential Policy, the Independece of the Financial Supervisory and the External Governance of Banks: Their Effects on the Financial Stability and the Possibility of the Systemic Crises

Inbae Kim (Ewha Womans University)

Year 2022 / Vol 15 / No 3

This paper investigates the effects of the macroprudential policy, the financial supervisory’s independence and the bank’s external governance on the financial stability and the systemic crisis possibility of the banking industry. The results are as follows: (i) The banking sector’s systemic crises should not be analized as an extreme extension of its financial unstability. (ii) Those key policy and governances have a long run sustaining effects which indicate that they might improve the banks’ fundamentals qualitatively. (iii) The macroprudential policy and the financial supervisory’s independence enhance the financial stability, while the former has more positive effect in the countries where its strength is comparatively lower than the other countries. (iv) The bank’s external governance reduces the financial stability, but it also has a positive effect, that can be found distinctly in the countries where the strength of the external governance is comparatively lower than the other countries. (v) The macroprudential policy and the external governance tend to be immediately effective in reducing the possibility of systemic crises. 

Impact of Foreign Investment in Korea Treasury Bill Futures and Its Policy Implication

Kyu Ho Kang (Korea University) and Young Kyung Suh (The Bank of Korea)

Year 2022 / Vol 15 / No 3

This study analyzes the effect of fluctuations caused by foreign investors’ participation in the Korea Treasury Bill (KTB) futures market on the yield to maturity of KTBs. To this end, we develop an auto-regressive distributed-lag model with stochastic volatility that can simultaneously estimate the expected return channel and the volatility channel, which are two channels that the futures market affects on the spot market. A modified model is set up to take into account the asymmetry of the transition effect by time period, and it is estimated using Gibbs-sampling. According to estimation results, foreign net selling of futures raises the spot interest rate and increases the volatility of the spot market. In addition, the asymmetric transfer effect by macro and market conditions was analyzed, and it was found that the increase in the 3-year spot rate due to the net selling of foreign futures was larger during the period of net selling of foreign futures, the period of raising the Bank of Korea base rate, and the period of raising the US policy rate. 

An Analysis of Heterogeneity in the Effects of Pronatal Policies: Effects of Cash and Child Care Supports by Income Group

Chulhee Lee (Seoul National University)

Year 2022 / Vol 15 / No 3

This study analyzes how the fertility effects of pro-natal policies, such as cash and child care supports, differed by income group. For the purpose, we estimated and used the county-level total fertility rate by employment status and income, based on the Korean National Health Insurance data for the entire population. The results suggest that the effects of pro-natal policies differed by socioeconomic group. In general, cash and child care supports had stronger positive effects on fertility of middle- and higher-income households than the rest. This result perhaps indicates that richer families are at the “margin” of having children. This study provides the following implications. First, it will be desirable to evaluate the effectiveness of a policy by observing changes experienced by individuals at the margin, not based on its average effect. Second, it would be effective to mix various pro-natal policies that are supplements to one another. Finally, it is necessary to consider potential heterogeneity among different socioeconomic groups in preparing policy measures and selecting indices for evaluation.