This study attempts to analyze main features of business cycles in the
Korean industry. In particular, this study tries to decompose sectoral growth
rates into components arising from aggregate shocks and sector-specific
shocks. The results from the dynamic latent common factor model show that
most variability in output in many industries can be explained by idiosyncratic
components associated with industrial characteristics, rather than the common
factor to track sectoral comovement. Also, the results indicate that these
features have become more apparent since 2000. However, as sectoral
comovement may reflect not only aggregate shocks but also sector-specific
shocks that have propagated by way of input-output linkages, this study uses
a SVAR model to evaluate their relative importance. The SVAR analysis
indicates that aggregate shocks are dominant sources of sectoral comovement.
Therefore, they explains most of the variations (about 72∼78%) in sectoral
comovement, accounting for 16.13% of total variabilities in sectoral output
growth rates, on average.