Title : Uncertainty and the Impacts of Structural Oil Shocks on the Korean Economy

Author : Soojin Jo(Yonsei University), Myungkyu Shim(Yonsei University)

In contrast to the prior that oil shocks would deter the economic growth of Korea that imports most of energy sources, several studies have found no support for this prior. We address this dis- crepancy by estimating the effects of structural oil market shocks on the Korean economy at the aggregate and industry levels. We find that demand-driven oil shocks, particularly global economic activity shocks, can have sizable positive impacts, while supply-driven shocks do not significantly affect the Korean economy. Further analysis of energy-intensive sectors reveal that the mining and manufacturing sector shows similar responses to the aggregate-level industrial production, while the construction sector is negatively affected by the supply shocks. Using a state-dependent model, we show that the level of uncertainty would materially change the way that the mining and manufacturing sector responds to oil supply shocks. Our findings highlight the importance of accounting for the structural sources of oil price changes, sectoral heterogeneity, and the level of uncertainty, to better understand the impacts of oil price shocks.