BOK Builds 'BOK20' Model Reflecting Uncertainty in Population and Trade Changes

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea announced on the 30th that it has developed a macroeconometric model called 'BOK20' reflecting recent changes in the economic situation. This model supplements the 'BOK12,' which was released in 2012 and has been used until now.

In the Monthly Survey and Statistics Bulletin published by Deputy Director Park Kyung-hoon of the Bank of Korea's Research Department Forecasting Model Team, the Bank explained, "BOK20 extends the estimation period from the previous end of 2011 to the first quarter of 2019 and incorporates changes in economic variables resulting from the revision of the Bank of Korea's national accounts base year to 2015, conducted in 2019."

It also added that it reflects recent economic theories and structural changes such as ▲the endogeneity of monetary policy ▲changes in population structure ▲expansion of uncertainty ▲changes in external trade conditions.

Regarding population structure, the model includes the elderly dependency ratio within the behavioral equations determining private consumption and corporate bond yields, allowing consideration of changes in consumption propensity due to an increasing elderly population. The dependency ratio refers to the number of people aged 65 and over per 100 people aged 15 to 64. Typically, as aging progresses, savings increase and consumption propensity decreases.

In the export-import behavioral equations, external trade conditions such as semiconductor industry cycles and China's economic growth rate were added as explanatory variables. This reflects the rapidly changing external trade environment. The Economic Policy Uncertainty index (EPU), an indicator reflecting uncertainty, was also included in the behavioral equations for private consumption, facility investment, and exports and imports.

Additionally, the Bank of Korea strengthened the fiscal sector in the BOK20 model to align with the national accounts. This is due to the recent increase in the share of local governments and social security funds within the general government.

Deputy Director Park explained, "The significance of the BOK20 model lies in reflecting changes in our economic structure that have emerged since the establishment of the existing BOK12 model and providing a more realistic macroeconomic analysis foundation by re-estimating the elasticities of macro variables."

He added, "As economic structural changes are expected to accelerate following the COVID-19 pandemic, we will continue efforts to improve the model's fit to reality to reflect these changes in the future."

This content was produced with the assistance of AI translation services.