A Causal Analysis of Changes in Korean Household Consumption Behavior after the 1997 Currency Crisis
Author: Youngjun Choi(Economist, Regional Economies Section, Research Department, Bank of Korea)
Through the analysis of a life-cycle model, this paper closely examines
which specific age group caused the procyclicality that forms an exceptional characteristic of the consumption behavior of Korean households after the 1997 currency crisis. The existing studies on consumption behavior changes after the currency crisis are mostly based on the assumption that the occurrence of the changes was homogeneous across all age groups. In this paper, however, consumption behaviors are investigated through a cohort analysis by taking into account the possibility that they may have differed across age groups due to changes in the economic environment arising from such factors as large-scale unemployment, voluntary early retirement, and government policy.
Changes in household consumption behaviors after the currency crisis turn out not to have been homogeneous across all age groups, but to have been led by particular age groups. The increase in consumption over the 2000-2002 period was led mainly by an increase in spending by the cohort of those aged 20 to 35 and the decrease in consumption in 2003 was due largely to a decrease in spending by the cohort of those aged 55 to 60. However, it is found that consumption behaviors of the cohort of those aged 40 to 50 were not greatly affected by changes in the economic environment. Hence it can be said that the procyclicality of household consumption after the currency crisis is attributable to the differentiated consumption behaviors of certain age groups.