Front Matter Page
© 2004 International Monetary Fund
February 2004
IMF Country Report No. 04/45
Republic of Korea: Selected Issues
This Selected Issues paper for the Republic of Korea was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on February 3, 2004. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Korea or the Executive Board of the IMF.
The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $15.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
REPUBLIC OF KOREA
Selected Issues
Prepared by Craig Beaumont, Paul Gruenwald, Dong He, Thierry Tressel, and Harm Zebregs
Approved by Asia and Pacific Department
February 3, 2004
Contents
I. Fiscal Policy in the Korean Business Cycle
A. Introduction
B. Main Characteristics of Fiscal Policy During 1970–2002
C. The Impact of Fiscal Policy Shocks on GDP
D. Conclusion
References
Tables
I.1 Variance Decomposition of Real GDP, in percent
Figures
I.1 Fiscal Indicators
I.2 Tax Revenue
I.3 Output Gap and Fiscal Impulse
I.4 Correlation Between Output Gap and Fiscal Impulse
I.5 Responses to Public Spending Shock
I.6 Responses to Tax Revenue Shock
I.7 Responses to Public Spending Shock
I.8 Responses of GDP Components to Public Expenditure and Tax Shocks
I.9 Responses of Public Spending and Tax Revenue to GDP Shock
II. The Phillips Curve and Okun’s Law—Do They Work in Korea?
A. Introduction
B. Theory and Empirical Specification
C. Properties of the Estimated Equations
D. Asymmetry and Monetary Policy Formulation
E. Forecasting Performance
F. Current Model Projections
G. Conclusion
References
Annex: Phillips Curve and Okun’s Law Estimates
III. A Family Divided—Labor Market Duality in Korea
A. Introduction
B. Labor Market Structure and Institutions
C. The Causes and Consequences of Labor Market Duality
D. The Government’s Reform Proposals
E. Lessons from International Experience
F. Concluding Remarks
References
Boxes
III. 1 Labor Market Duality in Korea: How Big a Concern?
III. 2 The 1997 Spanish Labor Market Reform
IV. Taking Stock of Nonbank Financial Sector Restructuring in Korea
A. Introduction
B. The Nonbank Financial Sector Post-Crisis
C. Progress to Date in Nonbank Restructuring
D. Why Was Nonbank Reform Delayed and What Have Been The Consequences?
E. Assessment and the Remaining Agenda
References
Boxes
IV.1 Nonbank Financial Institutions in Korea: Functional Descriptions
Tables
IV.1 Assets of Financial Institutions
IV.2 Use of Public Funds for Financial Sector Restructuring
IV.3 Number of Financial Institutions in Korea
IV.4 Employment in the Financial Sector
IV.5 Impaired Assets of Major Financial Subsectors
IV.6. Impaired Assets of Nonbank Lending Institutions