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Asymmetric effects of financial conditions on GDP growth in Korea: A quantile regression analysis

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  • Kwark, Noh-Sun
  • Lee, Changhyun

Abstract

With growing interest in the effects of financial conditions on the real economy after the global financial crisis, this study constructs a Korean financial conditions index and examines the effects of the Korean and the US financial conditions on future Korean GDP growth using quantile regression models. We find that the impact of Korean financial conditions on the future GDP growth of Korea is asymmetric in quantiles. The deterioration of financial conditions expands only the left tail of the distribution of next quarter's GDP growth and sometimes makes the distribution bimodal, implying the existence of multiple equilibria of bank runs and no bank runs distributions. The extended quantile regression model with US variables shows that the deterioration of US financial conditions expands both of the left and right tails of the distribution of the Korean GDP growth, increasing its variance.

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  • Kwark, Noh-Sun & Lee, Changhyun, 2021. "Asymmetric effects of financial conditions on GDP growth in Korea: A quantile regression analysis," Economic Modelling, Elsevier, vol. 94(C), pages 351-369.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:351-369
    DOI: 10.1016/j.econmod.2020.10.014
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    3. Lin Zhu & Jian He, 2024. "China financial stability and asymmetric implications for economic stability," Economic Change and Restructuring, Springer, vol. 57(1), pages 1-29, February.

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    More about this item

    Keywords

    Quantile regressions; Financial conditions index; GDP growth;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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