Oil and Small Open Macroeconomy: A case of Korea

Lee, Junhee; Song, Joonhyuk

doi:10.1080/1226508x.2012.655029

Cited by 1 publication

(1 citation statement)

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“…This finding supports our argument that an upward jump in the perceived amount of model uncertainty was an important determinant of the rapid reserve accumulation following the crisis. Our structural approach thus enables a novel interpretation for the structural break following the Asian Financial Crisis which has been studied extensively in the literature (see Gerlach et al, 2006;Lee and Song, 2011 . To check whether the results above extend to other crisis-affected countries, we also conduct an empirical analysis using Thai data and obtain similar results (reported in Appendix D ).…”

Section: Introductionmentioning

confidence: 92%

The Asian Financial Crisis and international reserve accumulation: A robust control approach

Lee

Luk

2018

Journal of Economic Dynamics and Control

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Standard macroeconomic models have difficulties accounting for the surge in international reserves of Asian countries in the aftermath of the Asian Financial Crisis of 1997. We propose precautionary demand for saving generated by model uncertainty as an important driver of this phenomenon. Using Korean data, we estimate a simple permanent income model augmented with model uncertainty, find a structural break at the point of the Asian Financial Crisis, and identify a rise in concern for model misspecification which is distinct from an increase in income volatility. The post-crisis concern for model misspecification implies a reasonable detection error probability. We also show that learning serves as an additional powerful amplification mechanism in our framework.

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Section: Introductionmentioning

confidence: 92%