International Macroeconomic Fluctuations in Korea

Abstract

This paper examines international macroeconomic fluctuations in

Korea by focusing on the sources of fluctuations in key international

macro variables, such as cross-country output differential, real exchange

rate, and trade balance and international transmission of

key structural shocks. These structural shocks include countryspecific

supply, demand, and nominal shocks. A structural VAR

model with long-run restrictions (that are consistent with many

theoretical models) is constructed to investigate these issues. The

main findings are: (1) supply shocks explain most of the fluctuations

in cross-country output differential; (2) all three types of shocks

play a non-negligible role in explaining fluctuations in real exchange

rate and trade balance; and (3) demand and supply shocks generate

opposite signs of correlation between trade balance and real exchange

rate.