The Relationship between Uncertainty of Price Variables and Economic Fluctuations (in Korean)

Kyongwook Choi () and Namwon Hyung ()
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Kyongwook Choi: University of Seoul
Namwon Hyung: University of Seoul

Economic Analysis (Quarterly), 2010, vol. 16, issue 3, 1-41

Abstract: This paper explains the feedback effect between the volatility of price variables, such as inflation rate, the interest rate, and foreign exchange rate, and the domestic economic fluctuation of Korea. For example, we show that when the uncertainty of economic gross rate increases, the level of inflation increases as a result. Additionally, we adapted a new method of spillover index calculation which was originally developed by Diebold and Yilmaz (2009) to apply the volatility of price variables to Korea. The advantage of using our method is that we are able to apply low frequency macroeconomic data, in contrast with Diebold and Yilmaz' method, which is only applicable to high frequency data. From our method, we show that the volatility spillover sharply increases from 2001 to 2008, and right after the financial crisis, the volatility spillover is shown to decrease.

Keywords: Price uncertainty; Economic fluctuation; Multivariate GARCH-in-mean Model; Spillover index (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2010
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