• KDI Journal of Economic Policy
• /
• v.45 no.4
• /
• pp.1-22
• /
• 2023

We review the literature on the effectiveness of capital controls and macroprudential measures. First, we explain the purposes and examples of capital controls and macroprudential policies. We then analyze various theoretical models and empirical findings from prior studies that investigate the effectiveness of each instrument. Moreover, we review several studies that directly compare the two instruments and discuss whether policymakers should implement capital controls or macroprudential measures to overcome financial crises. Finally, based on a discussion of the findings of previous studies, we suggest several possible avenues for future research.

• KDI Journal of Economic Policy
• /
• v.39 no.1
• /
• pp.19-40
• /
• 2017

This paper analyzes the interaction between monetary and macroprudential policies mainly in the context of the non-cooperation among policy authorities. Each policy authority's optimal response is to tighten its policy measures when other authorities' policy measures are loosened. This indicates that the two policies are substitutes for each other. This result still holds when an additional financial stability mandate is assigned to the central bank. The condition for the response functions to converge to a Nash equilibrium state is analyzed along with the speed of convergence, showing that they depend on the authorities' preferences and the number of mandates assigned to policy authorities. If the financial supervisory authority (FSA) assigns greater importance to the output gap or a stronger financial stability mandate is assigned to the central bank (CB), the probability of non-convergence increases and the speed of convergence declines even when the condition of convergence is satisfied. Meanwhile, if the CB considers output stability as an important task, the probability of convergence and the speed of converging to a state of equilibrium are high. Finally, when a single mandate or small number of mandates is/are assigned to each authority, stability is more quickly restored as compared to when many mandates are assigned.

• KDI Journal of Economic Policy
• /
• v.46 no.1
• /
• pp.21-51
• /
• 2024

Since the Global Financial Crisis of 2008-2009, the importance of nonbank financial institutions in macroprudential management has increased significantly. Consequently, major countries and international financial institutions have been actively discussing and implementing macroprudential supervision and regulation for non-bank financial institutions (NBFI). In this context, this paper analyzes the systemic risk of both banks and non-bank sectors (securities firms and insurance companies) in South Korea over different time periods. Using the widely recognized ΔCoVaR methodology for measuring systemic risk, the analysis reveals that systemic risk increased substantially across all three sectors (banks, securities firms, and insurance companies) during the Global Financial Crisis, the European Sovereign Debt Crisis, and the COVID-19 pandemic. Although the banking sector exhibited relatively high systemic risk compared to the securities and insurance sectors, the relative differences in systemic risk varied across the different crisis periods. Notably, during the margin call crisis in March of 2020, the gap in systemic risk between the banking and securities sectors decreased significantly compared to that during both the Global Financial Crisis and the European Sovereign Debt Crisis, indicating that securities firms had a more substantial impact on risk in the overall financial system during this period. Furthermore, I analyze the impact of the issuance of equity-linked securities (ELS) by financial institutions on systemic risk, as measured by ΔCoVaR, finding that an increase in the outstanding balance of ELS issuance by financial institutions had an impact on increasing ΔCoVaR during the three crisis periods. These findings underscore the growing importance of non-bank financial institutions in relation to South Korea's macroprudential management and supervision. To address this evolving landscape, enhanced monitoring and regulatory measures focusing on non-bank systemic risk are essential components of maintaining financial stability in the country.