Lessons from Macro-Financial Policy in Korea: A Discussion

Korea’s experience of the past several decades shows that the transmission channel of external shocks continually shifts along with the sectors where financial regulation is weak. At first, during the Asian Financial Crisis, the channel ran through the currency and maturity mismatches on firm and bank balance sheets, and it later shifted to banks’ excessive short-term external borrowing during the global financial crisis. The COVID-19 shock in 2020 shows that the vulnerability is now located in non-bank financial institutions (NBFIs) and their foreign portfolio investment. In the aftermath of each crisis, the Bank of Korea and the Korean government made efforts to improve the macro-financial policy framework; thus, the current framework can be best understood as the historical result of these continuous responses against shifting vulnerabilities…