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A Structural Change in the Trend and Cycle in Korea

Author

Listed:
  • Nam Gang Lee

    (Bank of Korea)

  • Byoung Hoon Seok

    (Ewha Womans University)

Abstract

We develop a new identification approach based on the regression of consumption on output to identify a structural break in business cycles. Using this method, we find that a structural change in the trend and cycle in Korea occurred in 1993. To explain these, we estimate the parameters of the productivity process in Korea, using data on Solow residuals. Our estimates show that the relative importance of trend growth shocks in the post-break period increased by a factor of 2.56 compared to that in the pre-break period.

Suggested Citation

  • Nam Gang Lee & Byoung Hoon Seok, 2019. "A Structural Change in the Trend and Cycle in Korea," Working Papers 2019-26, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1926
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    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2019-26.pdf
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    References listed on IDEAS

    as
    1. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 69-102.
    2. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November.
    3. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    4. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    5. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    6. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1051-1099.
    7. Kunhong Kim & Yong-Yil Choi, 1997. "Business cycles in Korea: Is there any stylized feature?," Journal of Economic Studies, Emerald Group Publishing, vol. 24(5), pages 275-293, October.
    8. Restrepo-Echavarria, Paulina, 2014. "Macroeconomic volatility: The role of the informal economy," European Economic Review, Elsevier, vol. 70(C), pages 454-469.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Seungyoon Lee, 2020. "House Prices and Household Consumption in Korea," Working Papers 2020-11, Economic Research Institute, Bank of Korea.
    2. Jaewon Choi & Jieun Lee, 2023. "Network-based measures of systemic risk in Korea," Journal of Derivatives and Quantitative Studies: 선물연구, Emerald Group Publishing Limited, vol. 31(3), pages 174-196, June.

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    More about this item

    Keywords

    Structural change; Consumption volatility; Trend growth shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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