The Korean Journal of Economic Studies
The Impact of U.S. Economy Policy Uncertainty on Korean Economic Variables
Nam Hyun Kim Korea Deposit Insurance Corporation)Year 2018Vol. 66No. 4
AbstractThis paper focuses on analyzing the influences of Economic Policy Uncertainty (EPU) in the U.S. on the Korean economy. In particular, the Korean economy is influenced by a foreign EPU through changes in the foreign economy. I reflect this using a block exogenous VAR model. In financial markets, the empirical results after the financial market fully opened since the Asian financial crisis show that a positive shock to the EPU decreases the Korean and U.S. stock prices and interest rates while increases the won/dollar exchange rate in financial markets. When using other EPUs, the EPU about “Monetary Policy” shock had the strongest impact on the Korean financial market. According to empirical results of the macroeconomic variables, an EPU shock decreases the U.S. and Korean industrial gap and short-term interest rate, however industrial gaps start recovering slowly after three months. After the financial market fully opened, responses in industrial production gaps were smaller and faster than those over the entire period and showed a faster recovery speed.