1. Korea's Natural Rate of Unemployment: Estimates and Assessment

This paper estimates Korea's natural rate of unemployment using various estimation methods such as pure time-series methods, reduced-form methods, and structural form methods, with discussion about relative advantages and disadvantages of each estimation method. This paper also provides the confidence interval of the estimated natural rate of unemployment by the Monte Carlo integration method.

Though multivariate unobserved component model exhibits better performance in many aspects than other estimation methods, awareness should be raised for a potential misspecification problem of a multivariate unobserved component model. Considering that each method has its own advantages and disadvantages, it is recommended to make an inference on the natural rate of unemployment based on common results among various methods.

Korea's natural rate of unemployment was estimated to be around 3.8~4.0% on average in the period of 1979:Ⅰ~1987:Ⅳ, and to decline to 2.5~2.9% in the period of 1988:Ⅰ～1997:Ⅳ. During the Asian crisis, it is estimated to peak at near 4.8% and to have been on a downward trend since then.

2. Market Evaluation of the Value of Patent

Economists have long been involved in various studies, theoretical and empirical, on the economic gains from innovative activities and as their outcome, intellectual properties. In Korea, however, research in this field has experienced rather slow progress, partly due to the lack of data availability and the awareness of its importance.

This study attempts to measure the economic impact of patents on market value of firms from a microeconomic point of view. Analyses are performed to examine the ex-ante market valuation of patent acquisition activities by investigating the effect of patent acquisitions on daily stock prices as well as on annual market values. The study on the effect of a disclosure of granted patents on daily stock prices reveals that the economic value of a firm's patent acquisition is fairly high. The study on listed firms also reveals that a firm's patent registration stock has a positive and statistically significant effect on its year-end market value.

Therefore, it can be concluded that the analysis performed in this study supports the validity of Korea's current patent system. The result, however, does not guarantee the optimality of current system. Studies on various aspects of intellectual property should follow to shape the system into a socially optimal one.

3. A Study on the Fiscal Equity of Local Share Tax System in Korea

The success of fiscal decentralization depends on an effective intergovernmental transfer system. This paper focuses on the Local Share Tax(LST), the primary intergovernmental fiscal transfer in Korea. The LST, by law, aims to mitigate horizontal fiscal imbalance among the local governments. As an attempt to test the fiscal equity of the LST empirically, net fiscal benefits of each county are calculated based on a simple model. While the LST contributes to horizontal fiscal measured traditional inequality indices, a geographical pattern of net fiscal benefits is observed. From these findings, the role of LST on fiscal equity needs to be carefully re-examined.

4. Changes in the Weekly Working Hours and the Efficiency of Labor, 1963～2003

For a thorough accounting for economic growth, it is desired to include the working hours and the efficiency of labor as production factors in addition to the number of workers and human and physical capital stocks. This paper estimates the distribution of weekly working hours of total workers as a continuous variable using the maximum likelihood method, estimates the efficiency of labor as a function of working hours using wage statistics, and by combining these results, estimates the labor efficiency index in Korea for the period 1963～2003. Estimation results show that the efficiency of labor was maximized when the weekly working hours was 40 hours, and the average annual growth rate of the labor efficiency for the period 1963～2003 was 0.14 percent.

5. The Role of M&A in Restructuring Korea's Distressed Firms

With the outbreak of the financial crisis in mid-1997, the Korean government has removed a majority of M&A-related regulations in order to facilitate M&A transactions. This was based upon the belief that M&As are one of the most efficient ways to restructure financially distressed firms compared to other government-driven restructuring programs. In this paper, we try to empirically assess the role of M&A in restructuring distressed firms in Korea following the financial crisis. In doing so, three empirical analyses have been conducted. The first analysis attempts to identify financial characteristics of the insolvent M&A targets. The second exercise directly tests the change in performance of insolvent M&A targets before and after such M&A transactions. The third analysis is a more general assessment on the role of M&A transactions to determine if being involved in an M&A transaction (regardless of its motivate) has reduced the probability of becoming insolvent in the future. Overall, we find some evidence supporting that M&A activities after the financial crisis have played a positive role in restructuring financially distressed firms in Korea.

6. A Public Choice Study on the Use of the Central Bank's Reserved Profits: An Experimental Approach Through 61 Countries' Data

Although various publicly reserved funds have recently come to the fore of academic and policy-making attention in Korea, researchers rarely take up the issue of the reserve fund retained from annual profits by the central bank (i.e., the Bank of Korea). Starting with the general public choice premise that bureaucrats seek to maximize their discretionary budget, this paper first provides a theoretical reasoning why central bank's bureaucrats would prefer retaining annual profits to turning them to the Treasury. The major tenet to be emphasized is that retained profits as a reserve fund can give the central bankers discretionary power in their disposition. In particular, we focus on the close relationship between the reserve fund and the discount windows. The latter, as a monetary instrument, has traditionally been demonstrated to cause secrecy, arbitrariness, and other bureaucratic amenities in the previous literature. Subsequently, this paper, based on 61 countries data, empirically verifies that the central bank's reserve fund is at least partially used to additionally increase the discount windows. Since an excessive use of discount windows results in inflationary bias, we conclude the paper with some policy suggestions to have such bureaucratic power of discretion in check. This paper, if in its experimental nature yet, is expected to shed a critical implication for establishing the meaningful independence of the central bank to a host of countries.

7. Productivity and Patterns of Trade: The Experience of Korea in the 1990s

This paper analyzes the industrial growth of Korea in the 1990s and its relationship with the nation's export performance. The result shows that total factor productivity (TFP) played a significant role in the growth of some industries, where in particular a sharp increase in TFP was observed in the electrics and electronics industry and the automobile industry in the late 1990s. While CEPII RCA indexes for the Korean industries such as IT industry and automobile industry significantly increased since 1998, only limited evidence was found that TFP or TFI influenced RCA. Investigating Korea's export performance in the Northeast Asian context, this paper shows that, in the 1990s, the growth of Korea's exports to Japan was led by industries that recorded relatively fast growth in total factor input (TFI). In contrast, that to China was almost equally contributed by industries that experienced relatively fast growth in TFP or TFI. This paper also investigates competition between Korea and China, and Korea and Japan in the world market. The competition between Korea and China was relatively stronger for the Korean industries to whose growth TFI made a more significant contribution. While no decisive evidence is found for the relationship between TFP growth in Korean industries and their competition against Japan in the world market, it is revealed that the competition between Korea and Japan became less intense for the Korean industries to whose growth TFI made a stronger contribution. In this regard, the paper supports the view of 'nut-cracking' that the Korean economy has lost its competitiveness in the sectors where it maintained comparative advantage, but failed to catch up more advanced countries such as Japan by gaining competitiveness in more capital or technology intensive sectors.

8. Exchange Rate Pass-Through and Market Response: Competition between Korea and Japan in the US Steel Market

This paper theoretically formulated and empirically explored the relationship between exchange rate pass-through (ERPT) for (average) market price and an individual country's price, using steel products data in the US market, with special reference to two major steel exporting countries, Korea and Japan. It was found that the direction of market ERPT can be different from that of individual ERPT that each exporter experiences, due to strategic interactions among producers and different parameters. Vector error correction (VEC) models and impulse response analysis were used with the statistical inference based on the bootstrap-after- bootstrap of Kilian (1998) for short-run, and the fully modified estimation of Phillips and Hansen (1990) was used for long-run. Empirical results indicate that market ERPT in the US market due to changes in Korea-US exchange rates is different from those due to changes in Japan-US exchange rates. The framework developed in this study indicates that this phenomenon is attributed to either (i) the two countries have individual ERPTs of different magnitudes and directions for the products in the US market, or (ii) the pricing strategies of the other exporters' (to the US steel market) respond differently depending on whether the price of the product from Korea changes or that from Japan does. As each exporter's ERPT can be significantly different, and market response to each country's ERPT can be also different, this study concludes that it is crucial for an exporter to understand how competitors in the market respond to changes in its price, as well as to understand how its price changes when the relevant exchange rate fluctuates.