Understanding the Evolution of Sectoral Comovements: The Case of Korea (in Korean)

This paper investigates the time evolution of the effects of macroeconomic and sector-specific shocks on sectoral comovement. To this end, we use a factoraugmented VAR model, which is extended to allow for sectoral interdependencies and for time variations in model coefficients. Our findings are as follows. First, regardless of the time point examined, nearly all of the average sectoral correlation is attributable to macroeconomic common shocks, which the fraction of sectoral correlation attributable to sectorspecific shocks is generally very small. Second, among six macroeconomic shocks considered in this paper, shocks to the domestic business cycle and those to monetary policy are the two major sources of sectoral comovements. Also important are shocks to the world business cycle and oil prices. In contrast, shocks to the domestic price level and government spending could explain only a small fraction of the average sectoral correlation. Third, the amounts of sectoral correlation due to domestic business cycle shocks, world business cycle shocks, and government spending shocks have decreased substantially over the past two decades. On the contrary, shocks to oil prices and monetary policy have shown a rapid increase in their contribution to sectoral comovements.