Reasons for Recent Decline in Economic Volatility, and Implications (in Korean)

Hwan-Koo Kang (), Sei-joon Park (), Jihoon Ahn (), Jongik Park () and Sunghee Ahn ()
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Hwan-Koo Kang: Economic Activities Analysis Team, Research Department, The Bank of Korea
Sei-joon Park: Overall Research & Forecasting Team, Research Department, The Bank of Korea
Jihoon Ahn: Press Officer, The Bank of Korea
Jongik Park: Economic Activities Analysis Team, Research Department, The Bank of Korea
Sunghee Ahn: Planning & Financial Research Team, Gangwon Branch, The Bank of Korea

Economic Analysis (Quarterly), 2015, vol. 21, issue 2, 127-146

Abstract: Since the global financial crisis the Korean economy has experienced a conspicuous contraction in volatility, together with a slowdown in growth. Generally speaking, a contraction in economic volatility has some effect in promoting growth and investment by expanding economic stability and lessening the degree of uncertainty. On the other hand, however, if economic uncertainty still exists while the trend growth rate keeps falling, it will be negatively regarded as an obstacle to recovery. We accordingly analyze the recent contraction in Korean economic volatility and try to determine its various reasons, which we expect will provide some relevant policy implications. Our analysis finds that the recent decline in volatility have been caused by many factors, including a contraction in inflation volatility, an expansion in the size of the service industry, the reduced volatility in the world economy, and the persistent decline in the trend growth rate. For future policy, while closely monitoring the movements of economic volatility, it should be rigorously checked whether the contraction in volatility is attributable to structural restraints on the drivers of endogenous economic growth or to declines in the size of external shocks.

Keywords: Business fluctuation; Economic volatility; Contraction in volatility; GARCH (search for similar items in EconPapers)
JEL-codes: E02 E30 E32 E58 E63 (search for similar items in EconPapers)
Date: 2015
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