MACROECONOMIC STRUCTURAL CHANGES IN A LEADING EMERGING MARKET: THE EFFECTS OF THE ASIAN FINANCIAL CRISIS

Abstract

This study investigates stock market behavior in response to money supply, financial, aggregate spending, and aggregate supply shocks within a structural vector autoregression framework. Analyzing financial and macroeconomic data from the Korean market, a globally leading emerging market, we find that each type of macroeconomic shock has a significant effect on the price level and that real stock returns react positively (negatively) to aggregate supply (spending) shocks. Cumulative impulse response analyses suggest that the Korean economy's structure changed significantly following the Asian financial crisis. The results by industry sector indicate that, although the manufacturing and financial sectors share similar impulse response structures, the financial crisis' effects on the two sectors differ significantly.