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The impact of foreign bank deleveraging on Korea

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Frame of Image nal Department, Bank of Korea, 39, Namdaemun-Ro, Jung-Gu, Seoul, Korea, E-mail: mjkim12@bok.or.kr. **** Economic Research Institute, Bank of Korea, 39, Namdaemun-Ro, Jung-Gu, Seoul, Korea, E-mail: pshlhk@bok.or.kr. **** International Department, Bank of Korea, 39, Namdaemun-Ro, Jung-Gu, Seoul, Korea, E-mail: hyuk@bok.or.kr. This paper was prepared as a part of joint research collaboration between the Bank of Korea (BOK) and the IMF. We are grateful to Luis Breuer, Hoe Ee Khor, Junhan Kim, Seung Heon Lee, Jack Ree, and Tom Rumbaugh for insightful comments and suggestions. We are particularly thankful to Selim Elekdag for invaluable discussions on the DSGE model. We also thank the seminar participants at the Bank of KoreaIMF Joint research seminar for insightful discussions and comments. Thelma Choi provided excellent research assistance.
Contents
Ⅰ . Introduction ··············································································· 1
Ⅱ . Korea’s Linkages to International Banks: Stylized Facts ··· 2
Ⅲ . Effect of Foreign Bank Deleveraging on Korea: Evidence from a DSGE Model ··············································· 6
1. Model Description ··················································································· 6 2. Impulse Responses ················································································ 12
Ⅳ . The Transmission of the 2008 Crisis to Korean Banks: Regression Analysis ·····························································


Full Text
Title The impact of foreign bank deleveraging on Korea
Similar Titles
Material Type Reports
Author(English)

Jain-Chandra, Sonali; Kim, Min Jung; Park, Sung Ho; Shin, Jerome

Publisher

[Seoul]:The Bank of Korea

Date 2013-12
Series Title; No BOK Working Paper
Pages 31
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding The Bank of Korea; KDI School

Abstract

Korea was hit hard by the 2008 global financial crisis, with the foreign bank deleveraging channel
coming prominently into play. The global financial crisis demonstrated that a sharp deleveraging can
be transmitted to emerging markets through the bank lending channel to a slowdown in credit growth.
The analysis finds that a sharp decline in external funding led to relatively modest decline in domestic
credit by Korean banks, due to concentrated policy efforts by the government in 2008. Impulse responses
from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to Korea shows that it appears
better prepared to handle such shocks relative to 2008. Indeed, Korea is much more resilient to such shocks
due to the efforts by the authorities, which has led to the strengthening of external buffers, such as higher
foreign exchange reserves and bilateral and multilateral currency swap arrangements.