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Does the Solow Residual for Korea Reflect Pure Technology Shocks?

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  • Hyunjoon Lim
  • Sangho Kim
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    Abstract

    This study investigates the relationship between the measured Solow residual and demand side variables for the Korean economy. The measured Solow residuals are shown to be Granger-caused by some demand side variables such as exports, M1, and government expenditure. A vector error correction model is constructed to investigate dynamic relation between these demand side variables and the Solow residual. Impulse response functions shows that the measured Solow residual moves pro-cyclically with the demand shocks, and that the forecast error variance of the measured Solow residual is mostly explained by past innovations of these demand side variables

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    File URL: http://repec.org/esFEAM04/up.23104.1081758294.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 777.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:feam04:777

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    Keywords: Solow residual; Productivity shock; Vector error correction model;

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    1. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
    2. N. Gregory Mankiw, 1989. "Real Business Cycles: A New Keynesian Perspective," NBER Working Papers 2882, National Bureau of Economic Research, Inc.
    3. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
    4. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
    5. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
    6. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    7. Otto, Glenn, 1999. "The Solow Residual for Australia: Technology Shocks or Factor Utilization?," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 136-53, January.
    8. Phillips, Peter C. B., 1998. "Impulse response and forecast error variance asymptotics in nonstationary VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 21-56.
    9. Argia M. Sbordone, 1993. "Cyclical productivity in a model of labor hoarding," Working Paper Series, Macroeconomic Issues 93-20, Federal Reserve Bank of Chicago.
    10. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
    11. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27.
    12. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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    Cited by:
    1. Sangho KIM & Hyunjoon LIM & Donghyun PARK, 2007. "The Effect of Imports and Exports on Total Factor Productivity in Korea," Discussion papers 07022, Research Institute of Economy, Trade and Industry (RIETI).
    2. Kim, Sangho & Lim, Hyunjoon & Park, Donghyun, 2010. "Productivity and Employment in a Developing Country: Some Evidence from Korea," World Development, Elsevier, vol. 38(4), pages 514-522, April.

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