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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 24, No. 1, pp.1-20
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2011
Received 14 Jul 2010 Revised 02 Nov 2010 Accepted 09 Nov 2010

International Macroeconomic Fluctuations in Korea

Soyoung Kim
Professor, Department of Economics, Seoul National University, San 56-1, Sillim-Dong, Gwanak-Gu, Seoul 151-746, Korea, Tel: +82-2-880-2689, Fax: +82-2-886-4231 soyoungkim@snu.ac.kr

JEL Classification: F4

Abstract

This paper examines international macroeconomic fluctuations in Korea by focusing on the sources of fluctuations in key international macro variables, such as cross-country output differential, real exchange rate, and trade balance and international transmission of key structural shocks. These structural shocks include country-specific supply, demand, and nominal shocks. A structural VAR model with long-run restrictions (that are consistent with many theoretical models) is constructed to investigate these issues. The main findings are: (1) supply shocks explain most of the fluctuations in cross-country output differential; (2) all three types of shocks play a non-negligible role in explaining fluctuations in real exchange rate and trade balance; and (3) demand and supply shocks generate opposite signs of correlation between trade balance and real exchange rate.

Keywords:

Structural VAR, International macroeconomic fluctuations, Output differential, Real exchange rate, Trade balance

Acknowledgments

This work was supported by the Korea Research Foundation Grant funded by the Korean Government (MOEHRD) (KRF-2007-327-B00112).

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