A Time-Varying Connectedness Analysis of the Korean Economy

Abstract

We examine time-varying connectedness among Korea’s macroeconomic variables with a special focus on whether there are structural changes among macro variables between beforeand after-Covid19 periods. From total connectedness analysis, we found that the connectedness among macro variables intensified after Covid-19. From “NET” connectedness analysis, we also found that employment shock affects other variables more than other shocks affect employment and that wage is affected by other shocks more than its shock affect other variables after Covid-19 pandemic. Net pairwise directional connectedness analysis reveals that the sign of net effect reversed between (1) total hours worked and employment, and (2) wage and employment after Covid-19. Finally, network graphs of net pairwise directed connectedness, based on the relative strength of connectedness, show that wage shock strongly affect production. CPI also affects the production while it is also affected by interest rate shock. Employment shock has significant effect on interest rate. We also provide the policy implications based on the connectedness analysis.