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

Estimation of Social Cost of Carbon in Jeju Island: An Integrated Assessment Model Approach

Kuk Mo Jung (Sogang University) and Daseul Hwang (Bank of Korea)

Year 2022 / Vol 70 / No 2

In Korea, most research on the economic effects of climate change is limited to partial analyses of climate change on individual industries and sectors. Estimates on aggregate costs of externality caused by climate change a.k.a. the social cost of carbon through a lens of the Integrated Assessment Model (IAM) are rare. Based on recent IAM proposed by Golosov, Hassler, Krusell, and Tsyvinski (2014) this study estimates the social cost of carbon in Jeju Island for the first time in Korea. We find that social cost of carbon in Jeju Island based on year 2019 are estimated between ₩20.5 and ₩36.5 billion. These results amount to the social cost of carbon of a range from ₩16,000 to ₩29,000 per ton carbon in Jeju Island. 

Potential Bias in the CPI-Inflation Rates

Jaeyong Seo (Seoul National University) and Yongsung Chang (Seoul National University)

Year 2022 / Vol 70 / No 2

We propose a way to correct a potential bias in CPI-inflation rates. We consider three factors that may bias the CPI as a measure of true inflationary pressure in the economy: (1) market-based rental rates (2) ownersequivalence rents (3) operational loss caused by controlled prices of electricity and gas. When we consider all three factors above, the newly measured CPI-based inflation rates (as of December 2021) increases to 6.65% which is 2.95 percentage points higher than the official figure of 3.7%. Out of the total increase of 2.95 percentage points, 0.08 is due to the use of the KB rental index, 1.62 due to the inclusion of owners equivalence rents, and 1.25 due to the reflection of operational loss of the KEPCO and KOGAS. 

Effect of Cash Benefit on Marital Fertility: Evidence from the Basic Child Care Allowance in Gangwon Province

Chulhee Lee (, Seoul National University) and So-Young Lee (Korea Institute for Health & Social Affairs)

Year 2022 / Vol 70 / No 2

This study analyzes the effect of cash benefit on marital fertility. The results of county panel fixed model estimation shows that pro-natal cash benefits of local governments significantly increased marital fertility. The Basic Child Care Allowance (BCCA) in Gangwon Province offers a unique opportunity to examine the effect of a large-scale increase in pronatal cash benefit. A decomposition of change in the number of births suggests that marital fertility (especially the probability of having first child among married women with no child) sharply rose after the provision of the BCCA, playing a role of increasing the number of births. The results of difference-in-difference estimations based on county-level data suggest that the BCCA increased the marital fertility rates by 15~20% of the average rate during the sample period. 

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.