The ICAS Lectures


A Pedagogical and Substantive Study for the Korean Economy

Lawrence R. Klein

ICAS Spring Symposium
Humanity, Peace and Security
May 22, 2006 9:00 AM -- 6:30 PM
United States Senate Russell Office Building Caucus Room SR 325
Capitol Hill, Washington D.C. 20510
Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422


Biographic Sketch & Links: Lawrence R. Klein

A Pedagogical and Substantive Study for the Korean Economy

Lawrence R. Klein

. . . Of course, everyone is much more interested in North Korea and South Korea, how to approach North Korea, but life goes on in South Korea, and every day economic life goes on, and that's what the presentation to come is about. Now, I've entitled this a "Pedagogical and Research Interest in Understanding the South Korean Economy," and from a pedagogical point of view I want to stress that of course in American academic life, I can remember 50 years ago when our universities had a couple of percent of foreign students, and now are very well around 50% or more, and in graduate economics, in many cases it's more than 50%, and America establishes long-lasting friendships around the world, and it's very important.

Also the news has been full of misbehavior of scientists or scholars around the world, and I want to stress that we're trying to teach visiting scholars and our own scholars how to behave ethically in the real world environment after they leave academia, or behave in academia as well. And Kevin Chung is a graduate from the University of Pennsylvania in two major subjects; one is biomedical engineering, and the other is economics. And he will go on to a higher degree at the University of Chicago in statistics covering financial econometrics, covering other fields of statistics besides plain economics and biomedical. So this is very in my opinion, this is very significant to train people and to see them progress through our higher educational system.

I was a tutor Kevin was a tutee. I don't teach classes anymore. And it's an experiment. We have built systems that we call "high frequency economic systems" for the United States, for Hong Kong, for China, for Japan, for Mexico, and that makes it an interesting subject, and those are all ongoing projects. For China we make forecasts every two week; for the United States, every Friday afternoon on the week's activities. And we're trying to devise a technique to study the Treasury yield curve in real time. Any time during the day you can get a picture of expected end-of-day Treasure yield curve. So these are using new techniques and trying to teach them to our own American students and to visiting students from other countries.

Now there's in particular of interest about Kevin's work, at least to me. The large investment house of Goldman Sachs has made a new term, a new acronym called the BRICs B R I C and that's Brazil, Russia, India and China. And I have talked it's from their London office and I have talked to the person behind that, and I said, "It's not a true BRIC. You need B R I C K." And they don't quite like that because they think they have a hold on B R I C because they're issuing funds for B R I C, investment funds. But I think that Korea supplying the "K", making it a true BRICK is an interesting thing, and Goldman Sachs admits they're going to enlarge B R I C, not right away, and they aren't sure that they want Korea as the fifth member of that team. They say, "Well, maybe Mexico or maybe some other country." And in principle, Korea is not developing the way the other BRICs are because it's a member of OECD, but I still think it's not quite a full-fledged advanced country economy.

The idea that I've followed with the tutorials for Kevin is to follow the same principles we're using in China, in India, and in Russia we haven't yet started Brazil for the first part of the BRICs. But we do have working systems for Russia and China and India has just started, and now we would like to use the same techniques for Korea.

In addition to these pedagogical points and getting the system underway, there is a true interest in being able to forecast the Korean economy, and by "high frequency," we mean I mean, every six months, any week, any day, six months ahead. It's a rolling six-month projection, and what we're doing for other countries is studying the combination of medium term projections for up to five years together with the high frequency projections of six months. And so the first step is to construct a workable, testable model for the South Korean economy that will stand rigorous and careful testing, and I'm asking Kevin to present this. It was his senior honors thesis at the University of Pennsylvania, and the total thesis is much more technical and available for those who are interested in following, but we have an informative selection of charts and tables that he can present that describe the realism well, I would say the macro-economic realism of Korea today.

Thank you.

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