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

Understanding the Sources of High Inflation in Korea after COVID-19: Evidence from Disaggregate CPI Inflation Rates by Expenditure Category

Dukpa Kim (Korea University) and Yunjong Eo (Korea University)

Year 2022 / Vol 15 / No 2

Inflation has surged dramatically after COVID-19 due to domestic and foreign supply and demand shocks that occurred throughout the period of economic recovery. Based on Stock and Watson’s (2016) multivariate unobserved components model, we estimate trend inflation using disaggregate consumer price indices by expenditure category and investigate the sources of the recent inflation hike. Our empirical findings show that the sub-categories of transportation, restaurants/hotels, food/non-alcoholic beverages sectors, which are directly tied to global inflation pressure, have been primarily responsible for the recent increase in CPI trend inflation. As of the first quarter of 2022, the specific sectoral high inflation has not yet spread to other sectors, but survey-based inflation expectations have recently risen along with our estimate of trend inflation. We also discuss the policy implications of our findings about stabilizing inflation. 

Discussion on the CPI and Owner-occupied Housing Costs

Hyoung-Seok Oh (Bank of Korea) and Daeseong Han (Bank of Korea and KDI School)

Year 2022 / Vol 15 / No 2

Recently, there has been a growing number of opinions that the owneroccupied housing cost(OOH costs) should be reflected in the Consumer Price Index(CPI), which is used as an indicator for the Bank of Korea’s inflation target. This is because the CPI, which does not reflect the OOH costs, has a significant limit in expressing the entire price pressure of the economy. This paper investigates the current status and characteristics of the case of OOH costs in 10 advanced countries, including the United States, Canada, and New Zealand, in order to refer to the main discussion to reflect the OOH costs in Korea’s CPI in the future. In addition, the ECB’s recent decision to reflect the OOH costs in the target measure of inflation is also investigated. It is judged that there is a high need to reflect the OOH costs in the inflation target measure of the Bank of Korea for it’s efficient monetary policy operation. Considering this, it is highly necessary in Korea to reflect the OOH costs in the CPI, which is being used as a target index for price stability by the Bank of Korea, and for this purpose, it is judged that extensive discussion and in-depth review should be initiated. However, as there is currently no international standard method for calculating the OOH costs, and CPI volatility may increase. Therefore, it is necessary to derive the most suitable method for calculating the OOH costs for our economic conditions through in-depth consultations and reviews between the National Statistical Office and the Bank of Korea, and the gathering of opinions from experts. 

COVID-19 Pandemic and Family-Friendly Policy

Jungho Kim (Ajou University)

Year 2022 / Vol 15 / No 2

The paper investigates whether family-friendly policies mitigated the labor market consequence of the COVID-19 pandemic. The analysis using OECD country-level panel data finds that the role of family-friendly policy is different depending on its type. Familiy cash benefit is found to have helped women and men continue to work during the pandemic, but neither childcare service or parental leave are not found to have had any significant effect. On the other hand, the paternity leave was found to improve men’s employment during the global financial crisis in 2009. Hence, the findings indicate that cash benefit may be more effective than childcare service or parental leave during a catastrophic crisis in that it allows parents with children to have a more flexible arrangement.