KDI 정책연구. Vol. 24, No. 1, July 2002, pp. 5-48
This study attempts to explain why traditionally pro-cyclical trade balance became counter-cyclical since early 1990's in Korea. Structural VAR analysis for two sub-periods reveals two interesting changes in the role of the supply shock. First, impulse response analysis shows that the conditional correlation between the supply shock and trade balance turned from positive to negative over the two sub-periods. Second, the relative importance of the supply shock increased over the sub-periods. These two factors together explain the change in the cyclical properties of trade balance over time. Underlying cause behind these changes is likely to be the trade and financial market liberalization since late 1980's.