Journal Archive

Home > Journal Archive
Cover Image
  • P-ISSN 2586-2995
  • E-ISSN 2586-4130

KDI Journal of Economic Policy. Vol. 42, No. 4, November 2020, pp. 59-90

× KDI Open Access is a program of fully open access journals to facilitate the widest possible dissemination of high-quality research. All research articles published in KDI JEP are immediately, permanently and freely available online for everyone to read, download and share in terms of the Creative Commons Attribution 4.0 International License.

Effects of US Monetary Policy on Gross Capital Flows: Cases in Korea†


Author & Article History

Manuscript received 19 June 2020; revision received 23 June 2020; accepted 18 September 2020.


U.S. monetary policy has been claimed to generate global spillover and to destabilize other small open economies. We analyze the effects of certain identified U.S. monetary shocks on gross capital flows in the Korean economy using the local projection method. Consistent with previous results on other small open economies, we initially confirm that U.S. interest rate hikes are dynamically correlated with foreign outflows and residents’ inflows. That is, not only are they correlated with withdrawals by foreigners but they are also correlated with those by domestic (Korean) investors. The results are mostly driven by portfolio flows. Second, however, the marginal response to a U.S. monetary policy shock is, on average, subdued if we focus on the sample periods after the Global financial crisis of 2007-2008 (henceforth, global financial crisis). We conjecture a possible reason behind the change, an institutional change related to financial friction. If the degree of pledgeability of the value of net worth increases, the marginal responses by both investors would drop with a U.S. monetary policy shock, consistent with our findings.


U.S. Monetary Policy Spillovers, Gross Capital Flows, Local Projections, Financial Frictions

JEL Code

F32, F41, F42, E5

상단으로 이동