What are the Driving Forces of the Economic Downturn in Korea during COVID-19?

44 Pages Posted: 28 Dec 2020 Last revised: 12 May 2021

See all articles by Sanha Noh

Sanha Noh

Jeonbuk National University

Ingul Baek

Kongju National University

Date Written: May 12, 2021


We investigate the main driving forces of business cycles and heterogeneity across industries during the COVID-19 crisis in Korea. We build a small open economy model, solved up to the second-order, to fit the stylized facts of business cycles and employ several structural shocks as candidates of driving forces. In contrast to the financial crisis in 2008, the transitory productivity shock is the predominant source, although the permanent productivity shock is assigned less importance during the pandemic. Negative preference shocks rapidly reduce consumption in 2020Q1 but bounce back with upward pressure on consumption growth in 2020Q2. The services sector, especially accommodation and food, is the most adversely affected by structural shocks at the onset of the COVID-19 outbreak.

Keywords: COVID-19, Small open economy, Real business cycles

JEL Classification: E33, F4, H8

Suggested Citation

Noh, Sanha and BAEK, INGUL, What are the Driving Forces of the Economic Downturn in Korea during COVID-19? (May 12, 2021). Available at SSRN: https://ssrn.com/abstract=3755715 or http://dx.doi.org/10.2139/ssrn.3755715

Sanha Noh

Jeonbuk National University ( email )

567 Baekje-daero, Geumam 1(il)-dong
Korea, Republic of (South Korea)

INGUL BAEK (Contact Author)

Kongju National University ( email )

Korea, Republic of (South Korea)

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