International Linkages of the Korean Economy: The Global Vector Error-Correcting Macroeconometric Modelling Approach

79 Pages Posted: 15 Sep 2012

See all articles by Matthew Greenwood-Nimmo

Matthew Greenwood-Nimmo

University of Melbourne; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Viet Hoang Nguyen

Melbourne Institute of Applied Economic and Social Research

Yongcheol Shin

University of York (UK) - Department of Economics and Related Studies

Multiple version iconThere are 2 versions of this paper

Date Written: August 2012

Abstract

This paper analyses the international linkages of the Korean economy using the GVAR model developed by Greenwood-Nimmo, Nguyen and Shin (2012a, J. Appl. Econometrics). By employing a combination of generalised impulse response analysis and forecast error variance decompositions, we uncover a number of interesting phenomena. Among our most important results are the findings that the real economy and the financial markets are highly sensitive to the oil price even though it has little effect on inflation and that the interest rate is set largely without recourse to overseas conditions except to the extent that they are captured by the exchange rate. We find that the dominant sources of overseas influence on the Korean economy are the US, the Eurozone, Japan and China. Korea’s complex and open linkages with these countries will inevitably pose challenges for domestic economic management and stabilisation policy faced by the Korean monetary and fiscal authorities.

Keywords: Global VAR, impulse response analysis, forecast error variance decomposition

JEL Classification: C32, C53, E17

Suggested Citation

Greenwood-Nimmo, Matthew and Nguyen, Viet Hoang and Shin, Yongcheol, International Linkages of the Korean Economy: The Global Vector Error-Correcting Macroeconometric Modelling Approach (August 2012). Melbourne Institute Working Paper No. 18. Available at SSRN: https://ssrn.com/abstract=2146400 or http://dx.doi.org/10.2139/ssrn.2146400

Matthew Greenwood-Nimmo

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Viet Hoang Nguyen

Melbourne Institute of Applied Economic and Social Research ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Yongcheol Shin (Contact Author)

University of York (UK) - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

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