Yoonbai Kim

Purchasing Power Parity in the Long Run: A Cointegration Approach

This paper utilizes cointegration analysis to examine purchasing power parity relationships over a long-time horizon. The results indicate that the exchange rate is cointegrated strongly with the wholesale price index ratio and somewhat weakly with the consumer price index ratio. The cointegrating coefficient between the exchange rate and the price ratio is close to one when cointegration is confirmed. The hypothesis that the real exchange rate follows a random walk is rejected in most cases. Finally, a new test for common trends finds no such common trends in exchange rates or price ratios. Copyright 1990 by Ohio State University Press.

Causes of capital flows in developing countries

Abstract This paper investigates the causes of capital flows in four developing countries: Mexico, Chile, Korea, and Malaysia. Using structural decomposition analysis, it finds that the recent resurgence in capital movements is largely due to external reasons such as decreases in the world interest rate or recession in industrial countries. Domestic factors, including country-specific productivity shocks and demand shocks, are relatively less important. Another interesting finding is that the fundamental causes of capital flows differ little across the countries under study. These results suggest that developing countries need to pay attention to the financial arrangements associated with capital flows and to exchange rate policy as well as macroeconomic fundamentals to avoid financial crises in a world of increased capital mobility.

A common currency peg in East Asia? Perspectives from Western Europe

Abstract In this paper we investigate the feasibility of a common currency peg in East Asia from the perspective of Western European countries. We find that domestic outputs of East Asian countries are strongly influenced by country-specific shocks while regional shocks are far more important in European countries that have joined the Economic and Monetary Union. The results are robust to various changes in specifications of the model. They suggest that East Asian countries are structurally different from each other and thus more likely to be subject to asymmetric shocks. Based on optimum currency area grounds, a common currency peg in East Asia would be more costly and difficult to sustain.

Pricing exports: a cross-country study

Abstract This paper applies cointegration and error correction analysis to estimate the long-run steady state and short-run dynamic relationships between the exchange rate and export prices in industrial and newly industrializing economies. The data-coherent analysis allowing the endogeneity of domestic cost and the exchange rate shows that the exchange rate has smaller effects on the export price than previous studies would indicate. It contradicts some widely-accepted relationships— e.g. , smaller, more open countries have greater coefficients of pass-through. The results also exhibit important differences among the USA, Japan, and Germany in their export pricing behavior. (JEL F30, F31)

Purchasing power parity: Another look at the long-run data

Abstract This paper examines the purchasing power parity (henceforth PPP) using historical data and the cointegration approach. The results indicate that the exchange rate is cointegrated with the Wholesale Price Index (WPI) ratio but not with the Consumer Price Index (CPI) ratio. The cointegrating vector is close to (0, –1). For the CPI-based real exchange rates, however, we cannot reject the random walk hypothesis. The findings caution us on the use of general price indexes that give a large weight to nontraded goods and are therefore subject to long-run deviations from PPP.

An Empirical Analysis on Capital Flows: The Case of Korea and Mexico

This paper discusses causes of capital flows in Korea and Mexico. Both countries received substantial amounts of foreign capital in the late 1980s and early 1990s. International capital helped these countries achieve a higher standard of living and faster economic growth. However, undesirable macroeconomic effects such as appreciation of real exchange rate and widening current account deficits usually accompany foreign capital inflows. The vector autoregressive (VAR) method is applied to investigate the underlying shocks causing the capital inflows. The main findings are that the U.S. business cycle and shocks to foreign interest rates account for more than 50% of capital inflows to both countries in the past two decades.

Income Effects on the Trade Balance

This paper investigates the income effects on the trade balance with particular attention to the distinction between permanent and transitory disturbances for the United States, Japan, Germany, and the United Kingdom. In all four countries, movements in the trade balance have mostly been associated with transitory changes in income. The latter also are negatively associated with the trade balance. In marked contrast, permanent changes in income have little to do with the trade balance. These results are examined in light of intertemporal models and real business cycle models. Copyright 1996 by MIT Press.

The income and terms of trade effects: a permanent versus transitory decomposition in US trade

Abstract This paper develops an empirical analysis of the US trade balance with particular attention to the distinction between permanent and transitory disturbances to income and the terms of trade arising from real/monetary and demand/supply shocks. The results indicate that the income effects on the trade balance differ remarkably depending on whether a given change is permanent or transitory. For instance, a permanent increase in income deteriorates the trade balance whereas a transitory increase improves it. The results are contrasted to the predictions of the Mundell-Fleming-Dornbusch model and intertemporal models. (JEL F32).

External Adjustments and Exchange Rate Flexibility: Some Evidence from U.S. Data

This paper examines the role of the exchange rate in U.S. external adjustments. The results show that the exchange rate is an important transmission channel of influence on prices, and with longer lags, on income and the trade balance. The effects of the exchange rate and relative prices on the trade balance are not symmetric even in the long run. Exchange rate feedback is insignificant and makes little difference in trade balance adjustment. There are also indications that the response of relative prices to the exchange rate shifted in recent years. Such changes seem to help explain the persistence of the U.S. trade deficit in recent years for multilateral trade, but not bilateral trade, with Japan or Germany. Copyright 1991 by MIT Press.

Economics and politics in the United States: a state-level investigation

We examine state income and government spending data to investigate the role of political parties and elections in state business cycles of the United States, and find strong support for the partisan political business cycles, both traditional and rational versions. The growth rate of per capita real income and government spending tend to be higher (lower) with a Democratic (Republican) governor as well as a Democratic (Republican) president. In case of economic growth, we find some evidence for opportunistic cycles induced by national level politics; meanwhile, both national and state governments seem to generate expansionary policy in election years.