Journal of Advances in Economics and Finance

Download PDF (367 KB) PP. 21 - 27 Pub. Date: November 30, 2016

DOI: 10.22606/jaef.2016.11002

• Yu Hsing^*
  Department of Management & Business Administration, College of Business, Southeastern Louisiana University, Hammond, Louisiana, United States

Applying the aggregate demand-aggregate supply model and based on a sample during 2000.Q4-2016.Q1, this paper finds that aggregate output in South Korea is negatively affected by real depreciation of the Korean won, the real interest rate and the expected inflation rate are positively associated with government debt as a percent of GDP, lagged U.S. real GDP and growth of labor productivity. A major policy implication is that real depreciation of the Korean won would help exports but cause import costs and domestic inflation to rise and capital outflows.

Currency depreciation, government debt, productivity growth, interest rates.

[1] Bahmani-Oskooee, M., “Are devaluations contractionary in LDCs?” Journal of Economic Development, vol. 23, no. 1, pp. 131-144, 1998.

[2] Bahmani-Oskooee, M., Chomsisengphet, S., & Kandil, M., “Are devaluations contractionary in Asia?” Journal of Post Keynesian Economics, vol. 25, no. 1, pp. 69-82, 2002.

[3] Bahmani-Oskooee, M. and Miteza, I., “Are devaluations expansionary or contractionary? A survey article,”Economic Issues, vol. 8, no. 2, pp. 1-28, 2003.

[4] Barro, R. J., “Are government bonds net wealth?” Journal of Political Economy, vol. 82, pp. 1095-1117, 1974.

[5] Barro, R. J., “The Ricardian approach to budget deficits,” Journal of Economic Perspectives, vol. 3, pp. 37-54,1989.

[6] Buchanan, James M., “Perceived wealth in bonds and social security: A comment,” Journal of Political Economy, vol. 84, pp. 337–342, 1976.

[7] Cebula, R. J., “An empirical note on the impact of the federal budget deficit on ex ante real long term interest rates, 1973-1995,” Southern Economic Journal, vol. 63, pp. 1094-1099, 1997.

[8] Cebula, R. J., “Impact of federal government budget deficits on the longer-term real interest rate in the US:Evidence using annual and quarterly data, 1960-2013,” Applied Economics Quarterly, vol. 60, no. 1, pp. 23-40, 2014a.

[9] Cebula, R. J., “An empirical investigation into the impact of US federal government budget deficits on the real interest rate yield on intermediate-term treasury issues. 1972–2012,” Applied Economics, vol. 46, pp. 3483-3493, 2014b.

[10] Cebula, R. J. and P. Cuellar, “Recent evidence on the impact of government budget deficits on the ex-ante real interest rate yield on Moody’s Baa-rated corporate bonds,” Journal of Economics and Finance, vol. 34, pp. 301-307, 2010.

[11] Cebula, R. J., F. Angjellari-Dajci and M. Foley, “An exploratory empirical inquiry into the impact of federal budget deficits on the ex post real interest rate yield on ten year treasury notes over the last half century,”Journal of Economics and Finance, vol. 38, pp. 712-720, 2014.

[12] Darrat, A. F., “Fiscal deficits and long-term interest rates: Further evidence from annual data,” Southern Economic Journal, vol. 56, pp. 363-373, 1989.

[13] Darrat, A. F., “Structural federal deficits and interest rates: Some causality and cointegration tests,” Southern Economic Journal, vol. 56, pp. 752-759, 1990.

[14] Feldstein, M., “Perceived wealth in bonds and social security: A comment,” Journal of Political Economy, vol. 84, pp. 331–336, 1976

[15] Feldstein, M., “Government deficits and aggregate demand,” Journal of Monetary Economics, vol. 9, pp. 1-20, 1982.

[16] Findlay, D. W., “Budget deficits, expected inflation and short-term real interest rates: Evidence for the US,”International Economic Journal, vol. 4, pp. 41-53, 1990.

[17] Gupta, K. L., “Budget deficits and interest rates in the US,” Public Choice, vol. 60, pp. 87-92, 1989.

[18] Gylfason, T. and M. Schmid, “Does devaluation cause stagflation?” Canadian Journal of Economics, pp. 641-654,1983.

[19] Gylfason, T. and O. Risager, “Does devaluation improve the current account?” European Economic Review, vol.25, pp. 37-64, 1984

[20] Hoelscher, G., “New evidence on deficits and interest rates,” Journal of Money, Credit, and Banking, vol. 18, pp.1-17, 1986.

[21] Kalyoncu, H., S. Artan, S. Tezekici and I. Ozturk, “Currency devaluation and output growth: An empirical evidence from OECD Countries,” International Research Journal of Finance and Economics, vol. 14, pp. 232-238, 2008.

[22] Kim, G., L. An, and Y. Kim, “Exchange rate, capital flow and output: Developed versus developing economies,”Atlantic Economic Journal, 43, pp. 195-207, 2015.

[23] Lane, P. R. and J. C. Shambaugh, “Financial exchange rates and international currency exposures,” American Economic Review, vol. 100, no. 1, pp. 518–540, 2010.

[24] McMillin, W. D., “Federal deficits and short-term interest rates,” Journal of Macroeconomics, vol. 8, pp. 403-422,1986.

[25] Morley, S. A., “On the effect of devaluation during stabilization programs in LDCs,” Review of Economics and Statistics, vol. 74, pp. 21-27, 1992.

[26] Ostrosky, A. L., “Federal government budget deficits and interest rates: Comment,” Southern Economic Journal,vol. 56, pp. 802-803, 1990.

[27] Woodford, M., “Is an undervalued currency the key to economic growth?” Columbia Working Paper Series, No.0809-13, 2009.