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A comparative estimation of financial frictions in Japan and Korea

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Issue Date
2009-01
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.22 No.1, pp. 95-121
Keywords
Business cycle accountingTFPFinancial frictions
Abstract
We apply the Business Cycle Accounting method a la Chari,

Kehoe, and McGrattan (2007) to the Japanese and the Korean

economy and quantitatively analyze the effects of financial frictions

during the recent recessions. First, we compute exogenous distortions

in the financial, government purchases, labor, and production

markets. The preliminary results show that the sudden drop in

production efficiency (TFP) was the main reason of the Korean

recession while the increase in labor market distortions was the

main reason of the Japanese slump. Next, we orthogonalize the

innovations to the distortions and quantify the maximum spill-over

effects of financial frictions on output fluctuations in both countries

following Christiano and Davis (2006). Our results imply that

financial frictions may have been important in explaining the

recessions in both countries through their effects on TFP and

labor market distortions.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/67698
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of Economics (SJE)Seoul Journal of Economics vol.22 no.1~4 (2009)
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