TITLE:
Legacy of the Asian Currency Crisis: The Case of Korea
AUTHORS:
Jangryoul Kim, Gieyoung Lim
KEYWORDS:
Permanent and Transitory Components; Markov Regime Switching
JOURNAL NAME:
Modern Economy,
Vol.3 No.8,
December
31,
2012
ABSTRACT: This paper reexamines the long run effects of the 1997 Asian crisis on the Korean economy. Using unobserved components models subject to Markov regime-switching, we address two questions:1) whether the output losses of Koreaduring 1997-1998 were permanent or transitory;2) when the trend growth rate decreased. Estimation results suggest that the trend growth rate of the Korean economy has already declined around 1992-1993 prior to the 1997 crisis, and given the transition of the Korean economy into the low-growth regime in the early 90s, the effects of the crisis are mainly transitory.