Korea's Monetary Policy Responses to the Global Financial Crisis

Abstract

The Korean monetary authorities have implemented several policies on inflation, foreign exchanges and capital flows during and after the global financial crisis. The inflation target has been missed during the global financial crisis, as the Bank of Korea (BOK) was more lenient to supply shocks’ inflation in order not to impose the additional contractionary pressures on the economy during the global financial crisis. The Ministry of Strategy and Finance and the BOK tried to sustain the exchange market to be available for the public and to prevent the currency crisis. The monetary authorities have succeeded in preventing the currency crisis, but it is hard to say that the exchange market has been stabilized during the global financial crisis. The monetary authorities have imposed three macroprudential measures in order to prepare for the sudden stops. Those measures were not effective on reduction the volatility in the financial markets however they seem to have effect on the capital flows and lengthening the banks foreign debts.

Keywords: Monetary Policy, Inflation, Exchange rate, Capital flows

JEL Classification: E5, F3, N2