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  • P-ISSN 2586-2995
  • E-ISSN 2586-4130
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KDI Journal of Economic Policy. Vol. 48, No. 3, August 2026, pp. 51-84

https://doi.org/10.23895/kdijep.2026.48.3.51

× 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.

An Analysis on Adequacy of Effective Reserve Requirement Ratio in Korea

Jong Chil Son; Joonyoung Hur

Author & Article History

Manuscript received 31 January 2026; revision received 02 February 2026; accepted 14 May 2026.

Abstract

This study examines the adequacy of Korea’s effective reserve requirement ratio (defined as the ratio of banks’ Korean-won deposits held at the liability accounts of the Bank of Korea to their Korean-won deposits) and its potential use as a macroprudential policy tool, employing cointegration regression analysis and a Bayesian VAR conditional forecasting framework. The main findings are as follows. First, the effective reserve requirement ratio in Korea is found to exhibit a generally positive long-run equilibrium relationship with economic growth and the financial stress index. Second, projections of the ratio through 2045 based on the estimated cointegration coefficients indicate a gradual decline under the baseline scenario. Third, conditional forecasts for the next ten years using a Bayesian VAR show that maintaining the current level of 4.2% minimizes the sum of squared forecast errors, compared with scenarios in which the ratio increases or decreases by 1.5 percentage points. Fourth, Korea’s reserve requirement system appears to have contributed to macroprudential stability by functioning as an automatic stabilizer that mitigates short-term liquidity fluctuations in the money market. In conclusion, the current level of the effective reserve requirement ratio does not deviate significantly from its equilibrium path and is expected to decline gradually in response to changing macro-financial conditions, including a slowdown in economic growth.

Keywords

통화정책, 지준율, 거시건전성, 공적분 회귀, 베이지안 VAR, Monetary policy, Reserve requirement ratio, Macroprudential policy, Cointegration regression, Bayesian VAR

JEL Code

E4, E52, C1

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