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Uncertainty Shocks and Asymmetric Dynamics in Korea: A Nonlinear Approach

Kevin Larcher (), Jaebeom Kim and Youngju Kim ()
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Kevin Larcher: Department of Economics, Oklahoma State University
Youngju Kim: Economic Research Institute, The Bank of Korea

No 2018-12, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This study investigates the impact of uncertainty shocks on macroeconomic activity in Korea. For this purpose, a Smooth Transition VAR model is employed to document the state-dependent dynamics of two distinct types of uncertainty shocks, namely, financial market based and news-based. When nonlinearity is allowed to play a role in our model, quantitatively very different asymmetric dynamics are observed. Following in inflation targeting, the responses tend to be smoother and less pronounced. Our empirical results support the view that the link between uncertainty and macroeconomic activity is clear over both recessions and expansions. Furthermore, the impact of uncertainty shocks is more pronounced when economic activity is depressed especially after shocks originate from the financial market, and not from news-based policy uncertainty in Korea.

Keywords: Uncertainty shocks; Smooth transition vector autoregression; Asymmetric dynamics; Recessions (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2018-04-26
New Economics Papers: this item is included in nep-ets and nep-mac
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