사회과학연구(SSK)지원사업_기후변화연구소_2

 "Rare Disaster Event, Growth Volatility and Financial liberalization: International Evidence"

  최봉석(국제통상학과 교수 / 국민대학교)

Abstract

Purpose–
This paper elucidates a nexus between the occurrence of rare disaster events and the volatility of
economic growth by distinguishing the likelihood of rare events from stochastic volatility. We provide
new empirical facts based on quarterly time series. Particularly, we focus on a role in financial
liberalization on the growth volatility.
Design/Methodology–
We use quarterly data on consumption expenditure (real per capita consumption) from 44 countries,
including advanced and emerging countries, ending in 2020Q4. Moreover, we estimate the likelihood
of rare event occurrences and stochastic volatility for countries using the Bayesian Markov chain
Monte Carlo (MCMC) method developed by Barro and Jin (2021). We present our estimation results
for the relationship between the occurrence of rare disaster events and growth volatility.
Findings–
We find the global common disaster event, the COVID-19 pandemic, and thirteen country-specific
disaster events. Consumption falls by about 7% on average in the first quarter of a disaster and by 4%
in the long-run. The occurrence of rare disaster events and the volatility of GDP growth are positively
correlated (4.8%), whereas the rare event and GDP growth rate are negatively correlated (−12.1%).
Particularly, financial liberation has played an important role in exacerbating an adverse impact of
both rare disasters and financial market instability on the growth volatility. Several case studies
including the case of Korea provide insights on the cause of major financial crises in emerging
countries including the Asian currency crisis of 1998. As a country is more financially developed,
shocks of financial market instability tend to be dampened.
Originality/value–
This paper contributes to presenting new empirical facts on the relationship between the occurrence
of rare disaster events (or stochastic volatility) and growth volatility. Increasing data frequency allows
for greater accuracy in assessing a country’s specific risk. It provides informative insight into rare
events’ impact on growth volatility and business cycles.