Dissertations / Theses on the topic 'Monetary policy – Korea'

Household debt in South Korea is high and still rising. Household debt to GDP ratio had risen at the similar pace with that in the US until 2007 but it has still been rising whereas it has been falling since 2017 in the US. As a result, it is now higher in South Korea than in the US. There was a dramatic growth in household debt in the US preceding the recent Great Recession and high level of household debt was viewed to amplify the severity of economic recession in the US constraining consumer spending. In this context, high and continuously rising household debt could be a potential risk factor for the South Korean economy. Macroprudential policy, which indicates policy aims to reduce financial systemic risk pre-emptively, is a crucial measure to slow down the pace of household debt growth in South Korea. However, there is no established tool to analyse or evaluate its effects and relationship to monetary policy. The second chapter presents the trend and distribution of household debt in South Korea, and brief history of policy responses to continuously increasing household debt. The third chapter shows how macroprudential policy works by using a simple heterogeneous DSGE model with collateral constraint. The model is based on so-called borrower-saver model. Despite of its simplicity, the model can clearly explain how macroprudential policy affects household debt and related variables in South Korea. In addition, dynamics of this model imply increasing amortisation rate is superior measure to decreasing LTV ratio because it induces less volatility in economy. The collateral constraint in this thesis is designed to distinguish household debt (stock) and borrowing (flow). As a result, it is more realistic than the one mostly used in literature. This collateral constraint setting contributes to the better results especially when we analyse the phase of tightening household credit conditions. Furthermore, it enables us to see how amortization rate affects the South Korean economy. The fourth chapter extends the model mainly to see how credit tightening and monetary policy work differently and how they interact. Habit formation in non-durable good consumption, price rigidity in non-durable good producers, fixed cost in intermediate good production and monetary policy are added in the model. Not only the newly added elements themselves but also inflation make model's responses different from those in the previous chapter. Nominal and real rigidities make dynamics last longer and more realistic. Due to the structure of collateral constraint, a rise in inflation can reduce the level of real household debt whereas there is no inflation effect on real household debt with the common type of collateral constraint. This also influences responses to monetary policy shock. The results demonstrate credit tightening is better than monetary policy in slowing down the growth rate of household debt. Among all policy measures considered, decreasing amortization rate is the most effective and increasing LTV ratio is the second. These implies that ongoing policy efforts to slow down the growth rate of household debt in South Korea is on the right track. The fifth chapter shows welfare effects of macroprudential policy. The results illustrate it is impossible to get social welfare gains in a situation given in South Korea when discretionary macroprudential policy comes into effect. If government adopts countercyclical macroprudential rule, it is possible to improve social welfare but it requires welfare loss either of borrower or saver.

The thesis consists of four distinct essays examining different aspects of monetary transmission using firm and bank level data for Korea. The first essay examines the determinants of firms' capital structure using comprehensive Korean firm-level panel data. The empirical results show that small, less collateralised, riskier firms are more dependent on short-term bank finance. Particularly after the currency crisis period, banks have more concerns about firms' profitability and the level of debt in their lending practices, and firms with higher profits or lower leverage have easier access to short-term bank borrowing. When examining the impact of tight monetary policy on firms' external finance, firm size, profitability, and indebtedness have significant role in bank lending channel during the post-crisis period. The second essay examines firms' foreign currency exposure and real exchange rate balance sheet effects on firms' investments using Korean firm-Ievel data. The findings in this paper have helped uncover the elusive real exchange rate balance sheet effect in limited open economy literature. The third essay examines the impact of foreign banks on the monetary policy transmission mechanism in the Korean economy with a specific focus on the lending behavior of banks with different types of ownership. Using bank-level panel data of the banking system in Korea, we present consistent evidence on the buffering impact of the foreign banks, especially foreign bank branches including U.S. bank branches, on the effectiveness of the monetary policy transmission mechanism in Korea from the bank-lending channel perspective during the global financial crisis of2008-2009. Finally, the fourth essay empirically analyses availability of credit for small and medium firms (SMEs) based on bank-firm level data, with a particular focus on the credit policy of the central bank of Korea. Its findings can serve as a useful reference for implementing credit policy, which is being increasingly adopted by central banks since the global financial crisis.

In Korea, an inflation targeting (IT) regime was adopted in the aftermath of the Korean currency crisis of 1997–1998. At that time, the Bank of Korea (BOK) shifted the instrument of monetary policy from monetary aggregates to interest rates. Recently, central bank policymakers have confronted more uncertainties than ever before when deciding their policy interest rates. In this monetary policy environment, it is worth exploring whether the BOK has kept a conservative posture in moving the Korean call rate target, the equivalent of the US Federal Funds rate target since the implementation of an interest rate-oriented monetary policy. Together with this, the global financial crisis (GFC) of 2007–2009 provoked by the US sub-prime mortgage market recalls the following question: should central banks pre-emptively react to a sharp increase in asset prices? Historical episodes indicate that boom-bust cycles in asset prices, in particular, house prices, can be damaging to the economy. In Korea, house prices have been evolving under uncertainties, and in the process house-price bubbles have been formed. Therefore, in recent years, central bankers and academia in Korea have paid great attention to fluctuations in asset prices. In this context, the aims of this thesis are: (i) to set up theoretical and empirical models of monetary policy under uncertainty; (ii) to examine the effect of uncertainty on the operation of monetary policy since the adoption of interest rate-oriented policy; and (iii) to investigate whether gradual adjustment in policy rates can be explained by uncertainty in Korea. Another important aim is (iv) to examine whether house-price fluctuations be taken into account in formulating monetary policy. The main findings of this thesis are summarised as follows. Firstly, as in advanced countries, the four stylised facts regarding the policy interest rate path are found in Korea: infrequent changes in policy rates; successive changes in the same direction; asymmetric adjustments in terms of the size of interest-rate changes for continuation and reversal periods; and a long pause before reversals in policy rates. These patterns of policy rates (i.e., interest-rate smoothing) characterised the central bank‘s reaction to inflation and the output gap as being less aggressive than the optimising central bank behavior would predict (Chapter 3). Secondly, uncertainty may provide a rationale for a smoother path of the policy interest rate in Korea. In particular, since the introduction of the interest rate-oriented monetary policy, the actual call money rates have shown to be similar to the optimal rate path under parameter uncertainty. Gradual movements in the policy rates do not necessarily indicate that the central bank has an interest-rate smoothing incentive. Uncertainty about the dynamic structure of the economy, which is dubbed ‗parameter uncertainty‘, could account for a considerable portion of the observed gradual movements in policy interest rates (Chapter 4). Thirdly, it is found that the greater the output-gap uncertainty, the smaller the output-gap response coefficients in the optimal policy rules, and in a similar vein, the greater inflation uncertainty, the smaller the inflation response coefficients. The optimal policy rules derived by using data without errors showed the large size of the output-gap and inflation response coefficients. This finding confirms that data uncertainty can be one of sources explaining the reasons why monetary policymakers react less aggressively in setting their interest rate instrument (Chapter 5). Finally, we found that house prices conveyed some useful information on conditions such as possible financial instability and future inflation in Korea, and the house-price shock differed from other shocks to the macroeconomy in that it had persistent impacts on the economy, consequently provoking much larger economic volatility. Empirical simulations showed that the central bank could reduce its loss values in terms of economic volatility, resulting in promoting overall economic stability when it responds more directly to fluctuations in house prices. This finding provides the reason why the central bank should give more attention to house-price fluctuations when conducting monetary policy (Chapter 6).

-Exchange Rate Dynamics under Financial Market FrictionsThis paper extends Dornbusch's overshooting model by proposing "generalized interest parity condition", which assumes sluggish adjustment on the asset market. The exchange rate model under the generalized interest parity condition is able to reproduce the delayed overshooting of nominal exchange rates and the hump-shaped response to monetary shocks of both nominal and real exchange rates.-Electoral Cycle of Exchange Rate in KoreaThis paper empirically investigates the real exchange rate behavior around elections in Korea. We find that the real exchange rate depreciates more before the elections but there is no clear pattern found after the elections. Interestingly, this result is the opposite of the electoral cycle found in Latin American countries. To explain this results we should consider the difference between economic backgrounds of Korea and Latin American countries.-Exchange Rate Regime, Capital Market Openness and Monetary Policy; The Trilemma in KoreaThis paper tests the trilemma proposition by performing an empirical study of Korea. Korea has distinct periods of all combinations of exchange rate regime and capital market openness in trilemma: pegged exchange rate regime under capital controls, pegged exchange rate regime under free capital mobility, and floating exchange rate regime under free capital mobility. We check whether monetary autonomy exists in each of the three different combinations. We find that monetary autonomy existed over the periods with capital controls and the periods with floating exchange rate regime. For the periods with the pegged exchange rate regime and free capital mobility, monetary autonomy was limited. In addition, we identify that just before the financial crisis the government pursued autonomic monetary policy under pegged exchange rate regime and free capital mobility, thereby defying the trilemma.

碩士<br>中原大學<br>企業管理研究所<br>102<br>Abstract Taiwan and Korea are export-oriented countries, so the monetary policies for both country’s macroeconomics play a very important role. Short-term money market interest rates are important indicators of national monetary policy. This research conducted a study on the two methods. The first is the basic model Taylor (2001) proposed to study, the second aspect of the System to study. Taylor aspects of the model that we explore the relationship between interest rates, real exchange rate, GDP, CPI, unemployment rate, the inflation rate, U.S. interest rates. We further discuss two country central bank's monetary policy and exchange rate policy. The empirical results show that two country’s interest rate, GDP, CPI, unemployment rate, the inflation rate, U.S. interest rates are significantly affected. But the major difference is that of the real exchange rate. Therefore, in order to further explain this difference system, Taiwan's exchange rate system which is determined by the central bank, Korea exchange rate system instead is determined by the Ministry of Strategy and Finance, and hence Korea has larger exchange rate fluctuations.

碩士<br>國立臺灣大學<br>國際企業學研究所<br>101<br>Since the early 1980s, some scholars began to extend Mundell-Fleming model to the two-countries model and explored the relationship between the two countries. Taiwan and South Korea are both small open economy so that their economic environments are easily impacted by foreign economy. Therefore, this study focuses on the short-run and long-run interaction between U.S., Taiwan and South Korea macroeconomy during January 1981 to January 2013 The study use various time-series econometric methods. After the two-variable Johansen co-integration analysis, we find that Taiwan and South Korea’s exchange rates are not co-integrated, that is there is no long-run equilibrium relationship. It’s the reason we filter out exchange rates (E) in the following procedure, the overall variable co-integration analysis. This thesis compares U.S. federal funds rate (FFR) with Taiwan and South Korea’s Interest Rates (IR), Monetary Aggregation (M2), Industrial Index (IP), Consumer Price Index (CPI), and Trade Balance (TB), respectively using Vector Error Correction Model. It then further conduct Impulse Response Function Analysis. The empirical results show that U.S. monetary policy will impact Taiwan and South Korea’s overall economic variables by trade balance transnational channel.

碩士<br>東海大學<br>財務金融學系碩士在職專班<br>99<br>This Study focuses on Taiwan and South Korea and analyzes monthly data from January 2001 to December 2010, with respective calculation of month-on-month, quarter-on-quarter, half-year-on-half-year, and year-on-year change rates. The variables examined include the exchange rate, consumer confidence index, industrial production index, consumer price index, export price index, import price indices, and narrow and broad money aggregates. The paper attempts to investigate whether the impact of exchange rate movements on price levels will affect the adjustment in monetary policy. Empirical results show that the exchange rate pass-through on the price level is insignificant in Taiwan, partially linked with inflows of hot money. But the link is positive in South Korea. For consumer confidence, the inverse relation suggests that its improvement fails to be fully reflected in actual consumption behavior. In contrast, the positive association with industrial production further implies consumers’ lower sensitivity to business cycles. As regards the adjustment in monetary policy, it is found that as Taiwan’s exchange rate changes consumer prices, narrow money supply will be reduced in the following month. However, this policy change is conducted in the same month as import and export prices are changed by the exchange rate. In South Korea, adjustment in monetary policy mainly targets on import prices. But by data based on year-on-year changes, this adjustment seems absent. Keywords: exchange rate pass-through, inflation, monetary policy

碩士<br>國立臺灣大學<br>國家發展研究所<br>102<br>This study mainly investigates how the U.S. and Japan Quantitative Easing Policy affect the relationships between Korea stock prices and exchange rates. In this research, use the series of econometric analysis methods (Unit Root Test, Co integration Test, VAR, VECM, Granger Causality Test and Impulse Response) to estimate whether the relationships between Korea stock prices (KRX100, KRX IT, KOSPI, KOSPI 200, KOSDAQ, KOSDAQ Star and KOSDAQ IT) and exchange rates(KRW/USD and KRW/JPY) had changed after U.S. and Japan Quantitative Easing Policy. This Paper divided into four parts: Prior to U.S QE1, post U.S QE1, Prior to and Post Japan’s Abenomics. Consequently, this study shows that: 1) Before the U.S. QE1, there are bilateral relationships between KRW/USD and KRX100, KRX IT, KOSPI, KOSPI 200. But KRW/USD and KOSDAQ, KOSDAQ Star and KOSDAQ IT have uni- directional causality running from exchange rate to stock prices. 2) After the U.S QE1, KRW/USD and KOSDAQ, and KOSDAQ Star and KOSDAQ IT have uni- directional causality running from exchange rate to stock prices. But relationships between KRW/USD and KRX100, KRX IT, KOSPI, KOSPI 200 are independent.3) Before the Japan Abenomics, there is uni- directional causality running from stock prices to exchange rate. 4) After the Japan Abenomics, relationships between KRW/USD and KRX100, KOSPI, KOSPI 200 have changed to independent. This paper concludes that in Korea, the correlation between stock and foreign exchange markets becomes lower after the U.S. and Japan Quantitative Easing Policy.