한국개발연구. Vol. 14, No. 4, December 1992, pp. 27-49
This paper stresses the role of market fundamentals rather than bubbles in explaining Korea's recent experience of large fluctuations of stock and real estate prices. The bubble story that emphasizes the self-fulfilling prophecies of investors seems to be inappropriate to explain the recent changes of assets prices in Korea. Those who argue for bubble phenomenon in Korea tend to interpret the volatile movements of assets prices as some form of bubbles, but without implementing a rigorous test on the presence of bubbles. Even when some bubble tests are carried out, such studies exhibit various econometric problems in testing. More seriously, they suffer from the misspecification problems in setting up a market model. This paper has shown that Korea's recent changes in assets prices could be explained by changes in market fundamentals according to the emergence and the subsequent fading of 'three lows'. First, it tried to explain changes in assets prices by changes in such market fundamentals as real interest rates and economic growth. Second, it showed that the real estate prices overshoot when the liquidity and exchange rates change, using the two-sector general equilibrium portfolio balance model. It is argued that the rapid rise in real estate prices during 1986-89 stems from Yen's and Won's appreciation vis-a-vis the U.S. dollar and liquidity expansion (or decreases in real interest rates), while the downturn in real estate prices since 1990 is associated with Yen's and Won's depreciation vis-cl-vis the U.S. dollar and rises in real interest rates in reflection of the excess demand for liquidity.
G12, G14, F31