This paper examines Korea's relationship with the IMF's Integrated Policy Framework (IPF) and explores policy alternatives for emerging markets approaching the effective lower bound (ELB). The analysis traces Korea's unique evolution from emerging to advanced economy status, demonstrating how the country both benefited from and contributed to the development of IPF tools including foreign exchange intervention, capital flow management measures, and macroprudential policies. As Korea faces increasing ELB risks due to demographic challenges, the paper evaluates unconventional monetary policy tools used by advanced economies and finds them ill-suited for Korea's circumstances. As an alternative, it proposes funding for lending schemes as a more targeted approach, drawing on Korea's long history of using such facilities since the 1980s and more recent experience during political uncertainty in 2024-2025. The paper also discusses conditional forward guidance as an additional communication tool. These findings contribute to ongoing discussions about expanding the IPF scope and provide insights for other countries navigating similar economic transitions.
This study investigates the efficiency of the won/dollar foreign exchange market by analyzing daily won/dollar exchange excess returns and employing five commonly used technical trading rules representative of algorithmic trading strategies. The results, based on averaging the returns of 436 sub-trading rules to mitigate data mining concerns, reveal that the statistical significance of excess returns diminishes steadily throughout the 1990s, 2000s, and 2010s. Combined bootstrap methods and tests on technical trading rules demonstrate that excess returns from these technical strategies are not statistically distinguishable from those generated by null models such as RWD, AR(1), and CAPM in recent years, implying increased support for the adaptive market hypothesis or the efficient market hypothesis. The in-sample buy-sell returns from the five technical trading rules, which are generated by rolling 500-sample windows 6781 times, exhibit similar patterns. Notably, the one-period-ahead out-of-sample forecast results based on identical rolling regression windows indicate that CAPM, which attributes significant portions of excess returns to systematic risk, achieves superior performance in comparison to both the five technical trading rules and other null models evaluated.
This paper studies central bank communication in Korea using a high-frequency identification approach. We measure the monetary surprises by combining two sources: the policy rate announcement and the press conference. The monetary surprises contain two types of monetary news & horbar;the policy rate announcement and the future path of monetary policy, especially as conveyed during the press conference & horbar;along with the central bank's assessment of the economic outlook. We deconstruct the monetary surprises into the current policy target shocks, the future policy path shocks, and the central bank information shocks. Our identification approach uses high-frequency comovement of interest rates and stock prices, along with monotonicity restrictions assuming different responses of long-term and short-term interest rates to each type of monetary news. We find that the future policy path shocks have greater impacts on the economy than the current policy target shocks. These two monetary policy shocks occasionally have opposite directions.
Contrary to the conventional view that oil price hikes hinder economic growth in Korea, a country heavily dependent on energy imports, our analysis shows that demand-driven global economic activity shocks can significantly boost industrial production. We find that other structural oil market shocks do not necessarily dampen aggregate economic activity. At the industry level, the mining and manufacturing sectors respond positively, while the construction sector is negatively affected only by oil supply shocks. These findings highlight the need to account for the structural sources of oil price fluctuations and sectoral differences when analyzing the oil-macro relationship in small open economies.
This paper examines how Korean firms adjusted their pricing strategies during the post-pandemic high-inflation period using microdata on goods. We document four key patterns: (1) a sharp rise in the frequency of price adjustments, (2) stability in the size of individual price changes, (3) greater use of temporary discounts, and (4) wider price dispersion across outlets. These findings indicate that frequency adjustments were the dominant margin ofprice setting under high inflation. To assess macroeconomic implications, we incorporate this evidence into a DSGE framework with a time-varying Calvo parameter. The model shows that inflation-dependent adjustment frequencies amplify inflationary dynamics and alter policy trade-offs, underscoring the importance of embedding empirically grounded pricing behavior into policy analysis.
