The Upward-Sloping Path of Fiscal Multipliers and Humped-Persistent Tail Effect: Evidence from a Behavioral New Keynesian Model of South Korea

This paper estimates a hybrid Behavioral New Keynesian (BNK) model for the South Korean economy, extending the cognitive discounting framework of Gabaix (2020) with a reduced- form inertia parameter to capture the path dependency characteristic of economies with concentrated illiquid asset holdings. Using Generalized Method of Moments (GMM) estimation on quarterly Korean macroeconomic data spanning 1991–2025, I identify a cognitive discount factor of approximately 0.74 and a structural inertia weight of 0.44, both significantly different from the US benchmark. The estimated behavioral parameters generate a non-monotonic fiscal multiplier trajectory: an initial dampened response followed by a gradual build-up and a persistent hump — a pattern that departs from the immediate peak and monotonic decay predicted by standard rational expectations models. Robustness checks under alternative expectation assumptions, interest rate regimes, and augmented instrument sets confirm the stability of the estimates. These findings suggest that fiscal policy transmission in Korea operates through a delayed amplification channel rooted in cognitive frictions and structural inertia.