Open AccessDecomposition of the Business Cycle Shock and the Default Rate of SMEs in Korea
Author(s) -
Jaesung James Park,
Joonkyo Hong,
Sumi Na
Publication year - 2019
Publication title -
seonmul yeon'gu/seonmul yeongu
Language(s) - English
Resource type - Journals
eISSN - 2713-6647
pISSN - 1229-988X
DOI - 10.1108/jdqs-04-2019-b0002
Subject(s) - gdp deflator , shock (circulatory) , technology shock , business cycle , monetary economics , economics , productivity , index (typography) , capital (architecture) , real gross domestic product , econometrics , macroeconomics , monetary policy , dynamic stochastic general equilibrium , medicine , history , archaeology , world wide web , computer science
This paper, through a structural VAR identified by a long-run restriction which is imposed by a neoclassical growth model, decomposes the real price index of capital accumulation (= deflator for fixed capital accumulations/consumption expenditure deflator), labor productivity (= real GDP/total employee hours), and total employee hours into three business cycle shocks: (i) investment-specific technology shock, (ii) neutral technology shock, and (iii) non-technology shock, and explores which shock has played a significant role in contributing to decreases in the default rate of SMEs. Empirical results drawn from Korean data spanning from 2000:Q1 to 2016:Q2 indicate that when the two technology shocks arise by 1%p, the default rate decreases by 0.03%p to 0.05%p permanently. In contrast, the impact of the non-technology shock on the default rate is highly transitory : the default rate decreases by 0.02%p in response to the 1%p increment in non-technology shock but turns back to its initial level after about three quarters. These imply the technology shocks could account for the most of variations in the default rate of SMEs. Our empirical results, therefore, deliver the policy implication that SME financing should focus on innovative firms with aggressive funding.