Front Matter Page
WP/19/262
IMF Working Paper
Recent Shifts in Capital Flow Patterns in Korea:
An Investor Base Perspective
by Niels-Jakob Hansen and Signe Krogstrup
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Front Matter Page
IMF Working Paper
Asia and Pacific Department
Recent Shifts in Capital Flow Patterns in Korea: An Investor Base Perspective
Prepared by Niels-Jakob Hansen and Signe Krogstrup1
Authoritized for distribution by Andreas W. Bauer November 2019
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
Koreas cross border capital flows have tended to respond negatively in global risk-off episodes, resulting in volatility in the foreign exchange market and occasional policy responses in the form of foreign exchange interventions. We study the relationship between Korean capital flows and global volatility up to 2018. The response of capital flows during risk-off episodes have become more muted over time, and occasional safe-haven type flows into Korean bond markets have helped counterbalance the tendency for portfolio investors to leave. We describe these changing patterns and relate them to shifts in Korea’s domestic investor base. We discuss whether they reflect a sustained shift in the sensitivity of Koreas capital flow pressures to global risk-off episodes, and implications for monetary and exchange rate policies.
JEL Classification Numbers: F32, G11, G20.
Keywords: Korea; Capital flows, Exchange Rate; Flow of Funds.
Nhansen@imf.org and skro@nationalbanken.dk. Signe Krogstrup was an advisor in the IMF’s Research Department while writing this paper. The viewpoints and conclusions stated are the responsibility of the individual contributors and do not necessarily reflect the views of Danmarks Nationalbank. The authors thank Sean R. Craig, Tarhan Feyzioglu, Yuko Hashimoto, Joong Beom Shin, Sohrab Rafiq, Dongyeol Lee, Romain Bouis, T. Olafsson, Yizhi Xu, Andreas Bauer, seminar participants at the International Monetary Fund, and the staff at Bank of Korea for helpful comments and discussions. Wenjie Li provided excellent research assistance. All remaining errors are our own.