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Impact of FX-Related Macroprudential Measures in Korea: An Assessment

In: Volatile Capital Flows in Korea

Author

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  • Changho Choi

Abstract

In the periods leading to and during the global financial crisis, Korea experienced surges and reversals in capital flows on an unprecendented scale. The costs of these volatile capital flows were brought to light when about 50 billion dollars of portfolio and other investments—amounting to 5.2 percent of nominal gross domestic product (GDP) in 2008—flowed out of the financial system in the three months following the Lehman Brothers failure in September 2008, pushing the Korean economy close to another currency crisis. A main factor driving the excessive volatility of capital flows over this period was the procyclical fluctuations in cross-border capital flows through the banking sector, especially short-term noncore foreign exchange (FX) liabilities.1 In recognition of these vulnerabilities, Korea has introduced a new set of macroprudential policy measures since 2010 aimed at mitigating the procyclicality of cross-border capital flows through banks.

Suggested Citation

  • Changho Choi, 2014. "Impact of FX-Related Macroprudential Measures in Korea: An Assessment," Palgrave Macmillan Books, in: Kyuil Chung & Soyoung Kim & Hail Park & Changho Choi & Hyun Song Shin (ed.), Volatile Capital Flows in Korea, chapter 8, pages 187-216, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-36876-8_8
    DOI: 10.1057/9781137368768_8
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    Cited by:

    1. Hyeyoon Jung, 2021. "Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments," Staff Reports 989, Federal Reserve Bank of New York.
    2. Iñaki Aldasoro & Kyounghoon Park, 2018. "Bank solvency risk and funding cost interactions in a small open economy: evidence from Korea," BIS Working Papers 738, Bank for International Settlements.
    3. Kim, Kyungmin & Lee, Joo Yong, 2017. "Estimating the effects of FX-related macroprudential policies in Korea," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 23-48.

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