Abstract:

In this dissertation, I assess large business cycle fluctuation episodes and investigate what kind of shocks caused these large fluctuations and through what kind of mechanisms did these shocks operate.

In the first chapter I focus on the late 1997 Korean crisis. Three main features of this crisis are that output fell suddenly, output recovered rapidly and consumption fell even more than output. There is a large body of literature that explains the Korean crisis in terms of financial and monetary variables such as capital flows and bankruptcies. I complement these studies by focusing on the effect of these shocks on real macroeconomic variables such as real GDP and consumption. I show that a small open economy stochastic dynamic general equilibrium model can quantitatively account for the three features of the crisis taking real interest rate and productivity shocks as exogenous.

In the second chapter, I compare the similarities and differences of the recent crises in Hong Kong, Indonesia, Korea, Singapore, and Thailand. I show that productivity shocks along with shocks in the foreign debt market can account for the fluctuation of output, consumption, labor, investment and trade balance in each country. The large productivity drop in all countries in 1998 can be related to the bankruptcies caused by credit crunches and currency mismatches while the large increase in foreign debt market distortion can be related to the financial crisis.

In the third chapter, I study the evolution of postwar Japanese economy. The mystery of Japanese postwar catch up is that the rapid capital accumulation took place during the 1960s, not immediately after the war when the loss of capital stock increased the marginal product of capital. A canonical neoclassical model shows that the delay of catch up and rapid growth in the 1960s can be accounted for by the initial loss of capital stock and TFP shocks. Also, the economic fluctuation in the 1980s and 90s can be explained well by TFP shocks and labor shocks implying that there was no inefficient over-investment during the bubble economy period.