This paper addresses three issues on a relationship between uncertainty and business cycles in Korea.

First, focusing on a rapid increase in corporate bond issuance by Korean firms at international bond market, this paper proposes a new measure of domestic uncertainty using option adjusted spread of bonds issued by Korean firms at international bond markets. The domestic uncertainty is defined as a cross-sectional dispersion of corporate bond spreads.

Second, this paper investigates relationship between the measured domestic uncertainty and business cycles. Estimating a relatively simple forecasting regression, a one standard deviation increase in the domestic uncertainty is associated with 0.60, 0.89, and 1.74 percentage points decrease in GDP, domestic consumption, private investment growth, respectively.

In addition, estimating a relatively simple structural vector auto-regression model, a one standard deviation shock to the identified world uncertainty, represented by the VIX, and domestic uncertainty shock results in economic recession in Korea.

Lastly, this paper investigates the propagation of the world uncertainty through the domestic uncertainty channel to the Korean economy. In particular, the forecast error variance decomposition exercise suggests that approximately 75% of the world uncertainty is transmitted to the Korean economy through the domestic uncertainty channel.

This research adds to the literature by suggesting a new measure of uncertainty using corporate bond spread data. In addition, this paper contributes to the existing literature by highlighting the importance of the domestic uncertainty in transmission of the world uncertainty.

It is also worth noting that the proposed domestic uncertainty is relatively simple to construct. For the reason, it is expected that the policymakers could utilize the proposed domestic uncertainty in assessing the business cycle. In this regard, it is also expected that the domestic uncertainty would complement other business cycle indicators.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review

Chapter 3 Developing an Uncertainty Measure Using Bond Data
　Section 1 Overview of Corporate Bond Issuance in Korea
　Section 2 Measuring Uncertainty Using Corporate Bond Data
　Section 3 Business Cycle Characteristics of Domestic Uncertainty

Chapter 4 Statistical Analysis of Uncertainty and Business Cycles
　Section 1 Forecasting Regression Analysis of Domestic Uncertainty
　Section 2 Transmission Effects of Uncertainty Shocks and Global Uncertainty Channels

Chapter 5 Summary and Conclusion

References
Appendix
ABSTRACT