Structural Change in the Trend and Cycle in Korea

Nam Gang Lee ; Byoung Hoon Seok

Nam Gang Lee, First Author, Economic Research Institute, Bank of Korea, 39, Namdaemun-ro, Jung-gu, Seoul, 04531, Republic of Korea, Tel: +82-2-759-5473 nglee@bok.or.kr
Byoung Hoon Seok, Corresponding Author, Associate Professor, Department of Economics, Ewha Womans University, 52, Ewhayeodae-gil, Seodaemun-gu, Seoul, 03760, Republic of Korea, Tel: +82-2-3277-2773 bhseok@ewha.ac.kr

JEL Classification: E32, F44

Abstract

On the basis of regression of consumption on output, we develop a new approach to identify a structural break in business cycles. Using this approach, we find that a structural change in the trend and cycle in Korea occurred in 1993 and that the business cycles in Korea started to show the regularities of emerging market business cycles beginning 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 from that in the pre-break period.

Keywords:

Structural change, Consumption volatility, Trend growth shocks

Acknowledgments

We are grateful to the seminar participants at the Western Economic Association International 94th Annual Conference, 2019 Korea’s Allied Economic Associations Annual Meeting, 2018 Korea International Economic Association Annual Meeting, and the Bank of Korea for their valuable comments. All errors remain ours.

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