This study applies the optimum control theory to estimate the economic growth and equilibrium inflation rates of Korea and provides an interpretation of the resulting estimates.
Although Korea managed to maintain the rapid growth of its economy up until the 1970s, in the process, Koreans learned that their economy is helplessly exposed and vulnerable to the fluctuations in the international market. Moreover, they began to worry about the possible repercussions of persistent inflation, occurring from 1962 to 1979, on the prospects of Korea’s continued growth.
Inflation, now perceived as the single most serious threat to the Korean economy, will never be reversed unless we slow the pace of our economic growth. Between 1962 and 1979, the inflation-offset economic growth and gross national product (GNP) deflation rates were 9.1 percent and 18.1 percent, respectively. After breaking down this period into four parts, the figures come out to 7.9 percent and 19.3 percent, respectively, under the first economic development plan; 9.7 percent and 14.8 percent under the second; 10.2 percent and 20.2 percent under the third; and 9.4 percent and 18.7 percent under the fourth (1977-1979).
While these estimates, in and of themselves, are insufficient to directly explain the correlation between the rate of economic growth and rate of inflation, they do suggest that high economic growth accompanies high inflation rates. However, the annual economic growth rates between 1973 and 1979 do not appear to be directly correlated to the current unemployment and inflation rates of three percent and five percent, respectively.
성장률과 균형인플레율의 추계(Estimates of Korea’s economic growth and equilibrium inflation rates)
|Journal Title; Vol./Issue||한국개발연구:vol. 3(no. 4)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||KDI; KDI School|