Date of Award

1991

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

W. Douglas McMillin

Abstract

The dissertation research has two objectives. The first is to investigate the relevance of Ricardian equivalence to the Korean economy. The second objective is to investigate the empirical validity of the proposition of macroeconomic interdependence in Korea. The above two issues are examined by specifying and estimating a vector autoregressive (VAR) model as a compact approximation of macroeconomic reality in Korea. The nine variables selected for the VAR model are based upon theoretical and institutional considerations. Monthly Korean data for the period 1973:5-1989:11 are used in the analysis. First differencing for eight of the system variables is determined by unit root tests and further supported by cointegration tests. In addition, the Akaike information criterion leads us to select the optimal lag length of 12 months. Furthermore, an appropriate ordering of system variables is chosen based upon theoretical and institutional considerations. The dynamic effects of government debt and foreign shocks are evaluated by estimating variance decompositions (VDCs), impulse response functions (IRFs), and cumulative impulse responses (CIRFs). To estimate the standard errors of the VDCs, IRFs, and CIRFs, a Monte Carlo integration procedure is employed. The innovation accounting results appear to be fairly insensitive to alternative model specifications. Two salient features of the empirical findings are as follows. First, government debt has, at least in the short run, negative effects on macroeconomic activity in Korea. The results are generally consistent with the Ricardian equivalence hypothesis. Second, the proposition of macroeconomic interdependence is supported for the Korean economy. The innovation accounting results indicate that the Korean economy is significantly influenced by foreign output and foreign price shocks during the sample period considered here.

Pages

202

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