Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 16, No. 2, pp.215-246
ISSN: 1225-0279 (Print)
Print publication date 31 May 2003
Received 29 Oct 2003 Revised 21 Dec 2003

Impact of the 1997 Crisis on Korea's Growth Trend: Unobserved Component Model Based Analysis

Chan-Guk Huh ; Won-Am Park
Senior Research Fellow and the Director of Center for Macroeconomic Studies, Korea Economic Research Institute, FKI Building 12 Fl. 28-1, Yoido-dong, Ueongdungpo-ku, Seoul 150-756, Korea, Tel: +82-2-3771-0013
Professor, College of Business Administration Hongik University, 72-1 Sangsu-dong, Mapo-ku, Seoul, Korea, Tel: +82-2-320-1713

JEL Classification: E23


We offer a systematic examination of the extent of permanence of the adverse influence of the 1997 crisis and its aftermath on Koreas potential GDP trend by employing unobserved component models that decompose observed output into a stochastic trend and a stationary cycle. We consider models that allow a nonzero covariance between trend and cycle innovations. Results from several unobserved component models indicate that long-term trend growth rate has shifted downward in the post-1997 crisis period as the event seemed to have left some permanent adverse impact. At the same time, output gaps measured using output-Phillips curve models have remain negative in the same period. Results seem to suggest that it is premature to make such pronouncements that the Korea economy has now entered an era of low growth, say, an annual growth rate in the 4% range.


Potential output, Output gap, Korean economy, 1997 crisis


An earlier draft was presented at the 11th Seoul Journal of Economics International Symposium, “The Post-Crisis Macroeconomic Adjustment in East Asia” organized by the Institute of Economic Research, Seoul National University on October 29, 2003. We would like to thank Chang-Jin Kim and other conference participants for their helpful comments, and Min-Jin Cho for capable research assistance. Any remaining errors are our own. This work was supported by 2003 Hongik University Research Fund.


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