Abstract | PDF (915 kilobytes)

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Abstract | PDF (1987 kilobytes)

This paper introduces habit persistence in consumption into otherwise
a canonical new Keynesian small open economy. Households’ decision to
suboptimally adjust their consumption and labor hours entails a prolonged undesirable
terms of trade externality, leaving room for government to improve
welfare by controlling international capital movement even in the economy with
flexible prices and the Cole-Obstfeld preference, irrespective of nominal price
rigidities. It shows that government can improve welfare by intervening capital
movement across border in a small open economy with flexible prices, even if
there are only permanent productivity shocks, contrasting with Farhi and Werning
(2014). The paper also finds that higher the degree of habit persistence,
more aggressive capital control to international capital movement required to
stabilize the economy and to improve upon the welfare of either the flexible or
sticky price economy. The nominal interest rate should countercyclically move
to complement the procyclical capital control tax in stabilizing the capital movement
across border. Moreover, the resource allocations associated with both
optimal time-varying capital control show less volatile movements than the ones
without any intervention.

Abstract | PDF (992 kilobytes)

Since the 2013 designation of the bakery industry as a suitable business
for small- and medium-sized enterprises in South Korea, there have been
persistent questions about the validity of the designation and the suitability of the
500-meter store distance limits. This paper analyzes the effect of the entrance of
a large franchise bakery on the closing rates of neighboring rival bakery using the
Cox proportional hazard model. Our empirical results reveal that standard onestep
variable selection like Lasso selection can lead to omitted variable bias in
the Cox proportional hazard model, since it may exclude possible confounding
variables from the estimation. We first show that the double-Lasso (Least Absolute
Shrinkage and Selection Operator) selection method proposed by Belloni
et al. (2014) can resolve the omitted variable biases through the Monte-Carlo
simulations. The empirical results using the double-Lasso selection procedure
suggest that the number of franchise bakeries within 200 meters of a bakery significantly
increases the closure rate of that bakery, but that this effect becomes
insignificant when we restrict our analysis to small- and medium-sized bakeries.

Abstract | PDF (183 kilobytes)

The present study considers a model of delegated management where
risk-averse shareholders delegate their firm’s management to self-interested executives/
managers, but within the general equilibrium context of Pigouvian cycles.
A socially optimal class of managers’ renumeration contracts is identified
in this Pigouvian environment where business fluctuations could be driven by
private-sector expectations that are unrelated to economic fundamentals. These
general equilibrium considerations have two primary implications. First, the
“pay-for-luck” phenomenon, largely emphasized in the executive compensation
literature, arises as an aggregate equilibrium outcome, thereby providing a corollary
resolution of the corresponding “pay-for-luck” puzzle. While rendering the
CEO-to-worker pay ratio essentially irrelevant to social welfare, the delegated
management economy with the manager’s first-best compensation contracts may
produce economy-wide welfare losses more than one order of magnitude larger
that the Lucasian cost-of-business-cycle estimate, which constitutes a second
point.

Abstract | PDF (3837 kilobytes)

This study analyzes the effects of category-specific economic policy
uncertainty (EPU) shocks, which are extracted based on text analysis, on the
macroeconomy and financial markets in Korea. The estimation results reveal that
the effects appear to be distinct, depending on the type of EPU shocks. Shocks
to monetary policy uncertainty (MPU) and foreign exchange policy uncertainty
(FXPU) lead to a decrease in real GDP, employment, and stock prices, and a
depreciation of the Korean won. Shocks to fiscal policy uncertainty (FPU) affect
the macroeconomy and financial markets to a less extent. However, shocks to
trade policy uncertainty (TPU) appear to have little impact on the Korean markets.
Taking into account to the estimation results, it would be recommended
for policymakers to focus more on reducing MPU and FXPU since shocks to
MPU and FXPU may lead to a decrease in real GDP and employment and the
heightened volatility in equity and FX markets.