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Response of Domestic Production to Depreciation in Korea: an Application of Johansen's Conintegration Methodology

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  • Mohsen Bahmani-Oskooee
  • Hyun-Jae Rhee

Abstract

Theoretical and empirical studies concerned with the effects of devaluation on domestic production have generally concluded that while in industrial countries devaluation is expansionary, in developing nations it is contractionary. In this paper we consider the experience of Korea alone. After adopting a reduced form model from the literature, we employed Johansen's cointegration and error-correction technique and used quarterly data over 1971-94 to show that in Korea real depreciation of the Korean won is indeed expansionary. [F31, F41]

Suggested Citation

  • Mohsen Bahmani-Oskooee & Hyun-Jae Rhee, 1997. "Response of Domestic Production to Depreciation in Korea: an Application of Johansen's Conintegration Methodology," International Economic Journal, Taylor & Francis Journals, vol. 11(4), pages 103-112.
    • Handle: RePEc:taf:intecj:v:11:y:1997:i:4:p:103-112
    DOI: 10.1080/10168739700000029
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    References listed on IDEAS

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    1. Bahmani-Oskooee, Mohsen, 1996. "The black market exchange rate and demand for money in Iran," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 171-176.
    2. Hanson, James A., 1983. "Contractionary devaluation, substitution in production and consumption, and the role of the labor market," Journal of International Economics, Elsevier, vol. 14(1-2), pages 179-189, February.
    3. Solimano, Andres, 1986. "Contractionary devaluation in the southern cone : The case of Chile," Journal of Development Economics, Elsevier, vol. 23(1), pages 135-151, September.
    4. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-508, August.
    5. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    7. Gylfason, Thorvaldur & Radetzki, Marian, 1991. "Does Devaluation Make Sense in the Least Developed Countries?," Economic Development and Cultural Change, University of Chicago Press, vol. 40(1), pages 1-25, October.
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    Cited by:

    1. M Bahmani-Oskooee & A Mohammadian, 2018. "On the Relation between Domestic Output and Exchange Rates in 68 Countries: An Asymmetry Analysis," Economic Issues Journal Articles, Economic Issues, vol. 23(2), pages 1-29, September.
    2. Gabriel Montes-Rojas & Nicolás Bertholet, 2023. "When are devaluations more contractionary? A quantile VAR estimation for Argentina," Chapters, in: Fernando Toledo & Louis-Philippe Rochon (ed.), Monetary Policy Challenges in Latin America, chapter 8, pages 132-149, Edward Elgar Publishing.
    3. Munir A. S. Choudhary & Muhammad Aslam Chaudhry, 2007. "Effects of the Exchange Rate on Output and Price Level: Evidence from the Pakistani Economy," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(1), pages 49-77, Jan-Jun.
    4. Fouopi Djiogap Constant, 2012. "The CFA Franc Devaluation and Output Growth in the Franc Zone," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(1), pages 40-48, January.
    5. M Bahmani-Oskooee & I Miteza, 2006. "Stock Market Growth: An analysis of cointegration and causality," Economic Issues Journal Articles, Economic Issues, vol. 11(1), pages 37-64, March.
    6. Sharaf, Mesbah Fathy & Shahen, Abdelhalem Mahmoud, 2023. "Asymmetric impact of real effective exchange rate changes on domestic output revisited: evidence from Egypt," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(1), pages 2-15.
    7. Francisco Garcia-Blanch, 2001. "An Empirical Inquiry into the Nature of South Korean Economic Growth," CID Working Papers 74A, Center for International Development at Harvard University.

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