Macroeconomic Effects of Energy Price: New Insight from Korea?

Abstract

Under the double pressure of the Ukrainian–Russian war and the COVID-19 pandemic, the global energy crisis has also engulfed the Korean economy. Based on this context, this article examines the macroeconomic implications of energy prices, using Korea as an example. According to an empirical study using the impulse response function, the results show that an energy price shock causes a decline in production, labor supply, capital stock, and energy consumption, as well as an increase in consumption, wages, the goods price level, inflation, and the deposit interest rate. Meanwhile, variance decomposition findings indicate that the energy price shock has a greater impact on the Korean macroeconomy than other shocks. In addition, the findings of three types of robustness tests validate the reliability and accuracy of the conclusions reached in this work. In conclusion, the information presented in this study may aid Korean policymakers in implementing appropriate countermeasures against macroeconomic volatility caused by the energy price shock.

Keywords

• Korean macroeconomy
• energy price shock
• impulse response function
• variance decomposition