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

Author

Listed:
  • Kyongwook Choi

    (University of Seoul)

  • Namwon Hyung

    (University of Seoul)

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.

Suggested Citation

  • Kyongwook Choi & Namwon Hyung, 2010. "The Relationship between Uncertainty of Price Variables and Economic Fluctuations (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 16(3), pages 1-41, September.
    • Handle: RePEc:bok:journl:v:16:y:2010:i:3:p:1-41
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    More about this item

    Keywords

    Price uncertainty; Economic fluctuation; Multivariate GARCH-in-mean Model; Spillover index;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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