The main purpose of this thesis is to identify the dynamic effects of exogenous
economic shocks on the macroeconomic adjustment in a small open resource-poor
economy, Korea. It is well known that the macroeconomic adjustment process of an
open economy is best analyzed within an intertemporal general equilibrium framework.
However, empirical application of the framework has been very limited despite its
theoretical elaborateness.
This thesis provides one of the possible solutions to the apparent problem
discussed above. To analyze the effects of exogenous economic shocks on
macroeconomic adjustment, an intertemporal general equilibrium model is developed, and
the effects of an imported intermediate input price shock as well as various government
policy shocks are analyzed. By introducing a risk premium to the real interest rate and
imported intermediate input in production process, quite realistic theoretical predictions
are obtained about macroeconomic adjustment process.
The basic framework is, then, extended to be applied empirically. At this stage,
the role of government is explicitly introduced as a Stackelberg leader against the
producer and the consumer. The information structure among the players are assumed to
be open-loop. The resulting behavioral decision functions for the three players are
econometrically estimated with the assumption of rational expectations. The estimation
results of the forward-looking behavioral equations are quite satisfactory.
Additionally, simulation analysis is carried out to identify the quantitative effects
of each individual exogenous economic shock. The simulation results are, by and large,
consistent with the qualitative results. The main advantage of the simulation analysis was
its ability to decompose separate macroeconomic effects according to their causes and
origins. The analysis provides a clear picture of how the macroeconomy operates in
response to exogenous economic shocks. Among exogenous shocks, the price of
imported intermediate input, the world real interest rate and the real wage are shown to
have a crucial importance in macroeconomic adjustment process in Korea