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The Korean Economic Association was launched in Pusan on November, 30, 1952.

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KOREAN JOURNAL OF ECONOMIC STUDIES

Development of Weekly Regional Economic Indicator (WREI) and Regional Economic Snapshot

Won Suk Chung (Bank of Korea), Eunjeong Jo (Bank of Korea) and Sol Bin Lee (Bank of Korea)

Year 2024 / Vol 72 / No 3

This study developed a Weekly Regional Economic Indicator (WREI) using a Dynamic Factor Model (DFM) with mixed frequency to accurately assess regional economic conditions. WREI allows for regional comparisons due to its consistent composition and its weekly frequency, enhancing timeliness. WREI categorizes its constituent indicators into five categories (real activity, expectation, financials, households, labor market), enabling storytelling of key drivers of regional economic conditions through factor decomposition. Additionally, to provide a comprehensive overview of regional economic conditions, a Regional Economic Snapshot was developed, dividing the business cycle into 10 levels and visualizing it through heatmaps. 

A Study on Dating the Reference Cycle Using Components of Composite Coincident Index

Keun Yeong Lee (Sungkyunkwan University)

Year 2024 / Vol 72 / No 3

This study estimates the peaks and troughs of the reference cycle dates in Korea from January 2003 to December 2022 using the seven components of the coincident index and the multiple change-point model of Camacho et al.(2002). The estimation results show that the number of reference cycle dates estimated using the multiple change-point model (date-then-average approach) during the analysis period is four, which is the same as the number of reference cycle dates announced by Statistics Korea (average-then-date approach). However, when comparing the coincidence of the peaks and troughs, it is found that the peaks and troughs of the second cycle of the analysis period are similar, while the peaks and troughs of the third and fourth cycles are different. This large discrepancy in the timing of the turning points is likely due to differences in the two approaches, anomalous variables such as value of construction completed, and differences in trend estimation methods. 

Forcasting Young Childcare Services Based on Population and Household Structural Changes

Jihye Lee (Korea Institute for Health and Social Affairs) and Chulhee Lee (Seoul National University)

Year 2024 / Vol 72 / No 3

This study forecasts the future demand for the young childcare services by considering potential changes in the household structure, such as dual-income households, alongside demographic shifts. Despite the predicted decline in the young child population, the demand for public care services may not decrease proportionately due to the rise in dual-income families, coupled with an increased preference for public care based on household characteristics. The findings suggest that future childcare policies should account for not only the quantitative changes in the population but also the pace of household structure changes, the preferences for types of care based on household characteristics, and the demand for quality in terms of time and costs. 

KOREAN ECONOMIC REVIEW

Effects of Initial Labor Market Conditions on Job Polarization: Evidence from South Korea

Youngsoon Kwon (Yonsei University), Myungkyu Shim (Yonsei University) and Hee-Seung Yang (Yonsei University)

Year 2024 / Vol 40 / No 2

This paper investigates the extent to which initial conditions in the labor market influence the progress of job polarization in Korea. In particular, we compare the following two competing hypotheses: a specialization hypothesis and an inter-industry wage differentials hypothesis. Our findings indicate that job polarization is pronounced in industries that have historically relied on routine tasks and have experienced a significant increase in ICT capital intensity between 2000 and 2019. By contrast, initial inter-industry wage differentials are not associated with job polarization in Korea during the same period.  

Spatial Panel Analysis of Ambient Air Pollution in Korea

Hyungsun Yim (University of Illinois at Urbana-Champaign) and Byeongseon Seo (Korea University)

Year 2024 / Vol 40 / No 2

This study investigates the underlying drivers behind air quality pollution in Korea by using spatial panel analysis. Specifically, we consider the local and transboundary effects of economic, climatic, and geographical factors leading to the heightened presence of fine particulate matter (PM2.5). Furthermore, our study expands its scope beyond national boundaries to include an evaluation of external sources that contribute to elevated pollution levels within Korea. Consequently, this research adopts a multilevel approach to assess the within and outer factors of air pollution in Korea. Our analysis is based on a spatial panel dataset spanning all districts of Korea by incorporating satellite-based air pollution, meteorological, and geographic information for 2010–2016. Empirical results indicate that air pollution degrades the air quality in other cities and the overall national ambient pollution as well. Moreover, empirical results from the general nesting spatial (GNS) specification of spatial interaction suggest that the impacts of economic and climatic factors on air pollution are substantial. In addition, our analysis incorporates cross-country spatial effects of air pollution, which reveals a significant transboundary spillover effect. Furthermore, a deeper analysis of spatial heterogeneity underscores intriguing disparities in the impact estimates. Changes in domestic and foreign factors in the northwest region are linked to a more pronounced diffusion of pollution to multiple cities in contrast to the impacts originating from the southeast.  

How Much Do Prices Respond to Demand and Supply Shocks?

Seong-Hoon Kim (Yonsei University -- Mirae) and Seongman Moon (Jeonbuk National University)

Year 2024 / Vol 40 / No 2

This paper presents a theoretical examination of price responses to movements in demand and supply where firms face either unwanted inventories or stockouts in each period. The response mechanism consists of two complementary motives that arise when operating under uncertain business environments. To an increase in demand, a firm has a motive to lower its price reflecting lower effective marginal costs but also has another motive to raise its price to rebalance expected marginal revenues associated with two distinct demand states, unwanted inventories and stockouts. These two motives cancel out each other at optimum, resulting in a limited response of prices to demand shocks. To a cost-push shock, the firm has a motive to raise its price reflecting higher effective marginal costs for a given output level and is further prompted to raise prices reflecting a higher expected value of unit inventory. The two motives push prices up in the same direction, resulting in a large response of prices to supply shocks.  

KOREAN ECONOMIC FORUM

An Analysis of the Interrelationships between House Price, Jeonse Price, and Household Debt

Han Ik Jang (IBK Economic Research Institute) and Byeng Kuk Kim (Housing Research Institute)

Year 2024 / Vol 17 / No 2

This study dynamically examined the interrelationship between housing prices, jeonse prices, and household debt using the TVP-VARX model. According to the results of the empirical analysis, an increase in mortgage interest rates leads to a decrease in mortgage loans, a decrease in housing prices and jeonse prices. Increased mortgage loans cause rising housing prices and falling jeonse prices. The rise in housing prices leads to an increase in mortgage loans and an increase in jeonse prices, while the rise in jeonse prices also results in an increase in mortgage loans and an increase in housing prices. Looking at the combined shock, the response of mortgage loans, housing prices, and jeonse prices varies depending on the combined conditions. In the case of mortgage loans, interest rates for mortgage loans, jeonse prices for housing prices, and housing prices for jeonse prices are important factors that determine the direction of the response. Depending on the situation in the housing market, housing market prices may not rise even if mortgage loans increase. Recent changes in market interest rates have not been reflected in mortgage rates, which are acting as upward pressure on mortgage loans, housing prices, and jeonse prices. 

Assessment of Fiscal Sustainability Using Generational Accounts

Young Jun Chun (Hanyang University)

Year 2024 / Vol 17 / No 2

We suggest the generational accounts (GAs) as alternative fiscal sustainability indices to the government debt. The GAs assess the lifetime net tax burden across generations. They enable the evaluation of the fiscal sustainability and the generational equity taking explicit consideration of the future fiscal balance, unlike the government debt. The estimated GAs for Korea show: that the current fiscal policies are not financially sustainable; that about 13.3% of the future GDP must be appropriated to make up for the fiscal deficit of the future; and that the additional net tax burden of the future generations will increase by up to 20% of their lifetime income. The magnitude of the current government debt is smaller than the OECD average. But the government debt does not provide adequate information on the fiscal sustainability and the generational equity. The GAs can be alternative indices to the government debt. 

Age-Period-Cohort Effects in Income and Consumption Inequality

Jong In Yoon (Baekseok University)

Year 2024 / Vol 17 / No 2

This study used the APC model to estimate the age effect, period effect, and cohort effect shown in the Gini coefficients of before-tax income, after-tax income, and consumption. The main results are as follows. First, inequality in before-tax income has steadily increased since the 1990s, but inequality in after-tax income has increased only moderately, and inequality in consumption has not worsened until recently. Second, the difference between before-tax income and after-tax income inequality indicates the effects of income redistribution, which contributed to reducing inequality in after-tax income by greatly weakening the age effects. Third, the reason why inequality in consumption was so stable is because the age effects were very weak and the cohort effects offset it. The cohort effects observed in consumption inequality means that the consumption inequality of subsequent generations was smaller than that of the preceding generations. In a sense, Korea is becoming more equal when it comes to consumption. Fourth, another reason why inequality in consumptions was very stable was the two-earners’ income effect. The number of dual-income households has been steadily increasing, and their consumptions did not become significantly unequal even as they became older. Furthermore, they were less affected by recession, and not significantly more unequal than for the predecessors. In other words, two-earners’ households have been effectively provided insurance against income risks. In Korean society where has changed rapidly due to high economic growth in a short period of time, age effects, period effects, and cohort effects account for a large part of trends in income and consumption inequality.