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Is Real Depreciation Contractionary? The Case of South Korea

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  • Yu Hsing

    (Southeastern Louisiana University)

Abstract

Applying the AD/AS model, this paper finds that real appreciation of the Korean won has a greater positive impact on aggregate output in South Korea during 2000.Q4 - 2008.Q3 than that during 2008.Q4 - 2016.Q1 and that more government deficit spending as a percent of GDP does not increase aggregate output. In addition, aggregate output has a positive relationship with change in productivity and the real oil price and a negative relationship with the real interest rate and the expected inflation rate. These results suggest that during or after the recent financial crisis, the positive impact of the real effective exchange rate on aggregate output has declined and that more government deficit as a percent of GDP would not lift up the economy.

Suggested Citation

  • Yu Hsing, 2016. "Is Real Depreciation Contractionary? The Case of South Korea," Economics Bulletin, AccessEcon, vol. 36(4), pages 1951-1958.
    • Handle: RePEc:ebl:ecbull:eb-16-00700
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rates; government deficits; interest rates; labor productivity; oil prices;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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