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Macroeconomic policies of Korea to cope with the crisis

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Frame of Image . However, it can be assessed that, given the increased short-term liquidity through the massive inflow of foreign capital, the upward adjustment of domestic interest rate was not enough to be effective to alleviate the upward pressure of asset prices in Korea. After the crisis, the fiscal stimulus had significantly contributed to buffering the negative impact of the crisis in the first half of 2009, successfully playing its pump-priming role. Meanwhile, proactive monetary policy response along with strong fiscal stimulus also contributed to recovery of the Korean economy, though concern on its potential side effects such as asset market bubbles and fast inflation have been growing. Meanwhile, a certain degree of international cooperation may be required when policy stances are changed to exit from the crisis, specific exit strategies could be different depending on the country, in terms of the implementation time and scale. I. Introduction As for the Korean economy, the past two years can be characterized as a period of a sudden contraction and then a fast recovery, amidst the global financial crisis that was characterized as the largest economic turmoil since the Great Depression of the 1930s. Severe credit squeeze that shook global financial markets contracted every economy in the world, and Korea was not an exception to this shock due to its high dependency on the export sector. Consequently, financial markets, including the foreign exchange market, were thrown into a nea


Full Text
Title Macroeconomic policies of Korea to cope with the crisis
Similar Titles
Material Type Reports
Author(English)

Kim, Hyeon-Wook

Publisher

Korea Development Institute

Date 2010
Pages 26
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Macroeconomics
Economy < Economic Administration

Abstract

This paper reviews the macroeconomic policy of Korea before and after the recent crisis and thoroughly evaluates the effects of fiscal and monetary policies implemented to cope with the crisis. Before the crisis, Korea’s overall macroeconomic policy stance appeared to be contractionary. However, it can be assessed that, given the increased short-term liquidity through the massive inflow of foreign capital, the upward adjustment of domestic interest rate was not enough to be effective to alleviate the upward pressure of asset prices in Korea. After the crisis, the fiscal stimulus had significantly contributed to buffering the negative impact of the crisis in the first half of 2009, successfully playing its pump-priming role. Meanwhile, proactive monetary policy response along with strong fiscal stimulus also contributed to recovery of the Korean economy, though concern on its potential side effects such as asset market bubbles and fast inflation have been growing. (The rest omitted)