Joonyoung Hur

Dissecting the Effects of Terms of Trade Shocks on the Korean Economy

ABSTRACT Micro- as well as macro-level analyses on the terms of trade (TOT) for Korea are conducted. We demonstrate that the deteriorated TOT since the mid-1990s are largely attributable to declines in export prices of manufacturing goods and surges in energy import prices. A further investigation using a vector autoregressive (VAR) model identified by sign restrictions on impulse responses suggests that the structural innovation that reduces export prices and increases import prices is the most significant driver of the TOT fluctuations in Korea. Although the shock deteriorates the TOT, it is clearly associated with an expansionary effect on output, which is more pronounced at longer horizons.

Bad Luck, Bad Policy, and Learning? A Markov-Switching Approach to UnderstandingPostwar U.S. Macroeconomic Dynamics

In this paper we analyze changes in the Federal Reserve behavior and objectives since the 1960s justified by potentially evolving beliefs—through a real-time learning process—about the structure of the economy and shifts in policymakers’ preferences in the late 1970s. In addition, we allow for changes in the volatility of the structural shocks in a Markov-switching DSGE model. We evaluate the relative contribution of each narrative to the explanation of the Great Inflation and the Great Moderation. We argue that the interplay between central bank learning and a shift in policy makers’ preferences explains movements in the monetary instrument. In addition, the model captures non-policy related high volatility periods clustered around the mid-to-late 1970s, specifically supply side shocks that behaved as destabilizing forces driving macroeconomic fluctuations. We also find that the monetary policy shift toward inflation stabilization (in the late 1970s) changed the composition of output making the marginal efficiency of investment shock the most important contributor to the business cycle. To conclude, we observe that a change in monetary policy objectives, assumptions about policymakers’ learning process, and Markov-switching volatility are key to fit the model to U.S. post-war data.