This paper presents a preliminary report of the KDI
quarterly econometric model which is presently under extensive
revision. The initial KDI quarterly model was developed in 1979
and has since been revised and reestimated annually. Since 1986,
however, the Korean economy has undergone sweeping
structural changes in various sectors. As an example for the
first time in Korean history, the balance of payments turned into
a surplus in 1986 and increased further to $14billion in 1988.
The financial sectors, as a natural consequence of these
developments in the external trade sector, also had experienced
both qualitative and quantitative shifts and changes as well.
Along with these external developments, there has been a
substantial restructuring in the Korean financial markets towards
more liberalization and deregulations. Since these external and
internal changes gradually affected the decision-making
processes of the various economic agents in the economy, such
as individuals, firms and even the government itself, it now
seems necessary to take a fresh look at the way the economy is
working in this new environment and to incorporate these
changes formally into the model.
In what follows, we describe the basic structure of the
latest version of the revised model and report the simulation
results. We also provide the policy simulation results.
For policy simulation analysis, we subjected the system to a
1% increase in government expenditure and followed the
resulting path of the economy by differentiating the methods of
financing the increased expenditures such as consumption and