TITLE : [Economic Papers 6-1]
          Effects of Financial Liberalization on Consumption in Korea
AUTHOR : Byung Chul Chun
CONTACT : Institute for Monetary & Economic Research
             (tel: 82-2-759-5407, 5421 fax: 82-2-759-5410)
ATTACH : EP6-1-2.pdf

Summary:

  In this paper I set out to find the effect of financial liberalization on consumption in Korea. When we want to know the effect of new policy, we generally compare the change of parameters. But  financial liberalization is not the event of a day but a process sustained over a long time, so here I employ it as a variable.
  With an OLS model I find that financial liberalization caused  consumption. In addition, I show that real estate did not have a positive relation with consumption until the start of financial liberalization. The unconstrained group, who can borrow money against future income, increased as financial liberalization proceeded in the GMM model. A state-space model shows that real estate, which had not had a fixed relationship with consumption before the foreign currency crisis in Korea in the late 1990´s, influences consumption following the crisis.