The Korean Journal of Economic Studies
Main Characteristics of Sectoral Business Cycles and the Relative Importance of Aggregate and Sector
Kyungsoo Cha (Pusan National University)Year 2017Vol. 65No. 2
This study attempts to analyze main features of business cycles in theKorean industry. In particular, this study tries to decompose sectoral growthrates into components arising from aggregate shocks and sector-specificshocks. The results from the dynamic latent common factor model show thatmost variability in output in many industries can be explained by idiosyncraticcomponents associated with industrial characteristics, rather than the commonfactor to track sectoral comovement. Also, the results indicate that thesefeatures have become more apparent since 2000. However, as sectoralcomovement may reflect not only aggregate shocks but also sector-specificshocks that have propagated by way of input-output linkages, this study usesa SVAR model to evaluate their relative importance. The SVAR analysisindicates that aggregate shocks are dominant sources of sectoral comovement.Therefore, they explains most of the variations (about 72∼78%) in sectoralcomovement, accounting for 16.13% of total variabilities in sectoral outputgrowth rates, on average.