Influence of Uncertainty in Financial Markets on Import and Consumption

Objectives: This study has analyzed the influence of changes in financial market in Korea on the import and consumption as an object economic index. Methods/Statistical Analysis: Financial market has measured the historical changes on bond, foreign currency and stock market. On the other hand, import and consumption were calculated by using the changes in log value from final consumption of households and import amount of each service and goods. Findings: According to the result of analyzing the causal relationship by using the Granger causality test, volatility in financial market turned out to significantly influence on the import and consumption. As for bond market, a result has been derived that there was an opposite influence. As for impulse response function based on VAR model, it represents the influence of volatility in financial market on import and consumption in dynamic manner. In addition, variance decomposition of forecast error compares the relative explanatory power of volatility in financial market that accounts for distribution of import and consumption. Improvements/Applications: As for Korea, volatility in financial market turned out to be negative in import and consumption. According to the result of variance decomposition of forecast error, volatility in foreign currency market turned out to have the highest level of explanatory power on import and consumption.