Mapping Korea's International Linkages using Generalised Connectedness Measures

Hail Park Park () and Yongcheol Shin
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Hail Park Park: Economic Research Institute, The Bank of Korea

No 2014-16, Working Papers from Economic Research Institute, Bank of Korea

Abstract: Korea is a textbook example of a small open economy which is susceptible to conditions overseas but cannot affect them itself. Policymakers in Korea would therefore naturally beneï¬ t from an enriched understanding of the connections that exist between the Korean and global economies. We provide a detailed summary of these linkages using the generalised connectedness methodology introduced by Greenwood-Nimmo, Nguyen and Shin (2013b). Among our principal ï¬ ndings is the observation that domestic conditions are only generally important in the short to medium term, with overseas conditions exerting a dominant influence on Korea's economic prospects in the long run. The economies which exert the strongest effect on Korea are the US, Europe, China and the ASEAN group, with a considerable role also played by global energy markets. Furthermore, we ï¬ nd that the ongoing global ï¬ nancial crisis is associated with greater connectedness of the Korean economy with advanced economies and its reduced connectedness with emerging economies.

Keywords: Small Open Economy of Korea; Global VAR; Forecast Error Variance Decomposition; Generalised Connectedness Measures (search for similar items in EconPapers)
JEL-codes: C32 C53 E17 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2014-06-10
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Citations: View citations in EconPapers (3)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2014-16.pdf Working Paper, 2014 (application/pdf)

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