Aggregate debt efficiency and debt inertia: lessons from the Korean economy

This paper investigates the link between aggregate debt efficiency and debt inertia in an highly leveraged business sector like Korea's. The model des igns the concepts of liquidity multiplier and debt inertia to argue that th ey are two major indicators of aggregate debt efficiency. The empirical ass essment to the Korean business sector indicates that the aggregate debt eff iciency depends mainly on externalities of the debt inertia rather than liq uidity creation due to the liquidity multiplier. The economic crisis of Kor ea in 1997 proves that such a debt efficiency structure must be vulnerable to attack.