Author: Wongi Kim(Sungshin Womens' Univ.)

This study analyzes the role of permanent demand shocks in explaining long-run GDP in Korea using a structural vector autoregressive model and the identification strategy based on Furlanetto et al. (2025). The results show that permanent demand shocks prevail. In addition, permanent demand shocks mainly affect labor productivity rather than employment. To analyze the effect of permanent demand shocks on labor productivity, I decompose labor productivity into capital intensity, labor quality, and total factor productivity. Permanent demand shocks mainly affect capital intensity and total factor productivity through investment and R&D expenditure.