Korea’s Integrated Policy Framework Story: Extending into the Effective Lower Bound Era
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This paper examines Korea's relationship with the IMF's Integrated Policy Framework (IPF) and explores policy alternatives for emerging markets approaching the effective lower bound (ELB). The analysis traces Korea's unique evolution from emerging to advanced economy status, demonstrating how the country both benefited from and contributed to the development of IPF tools including foreign exchange intervention, capital flow management measures, and macroprudential policies. As Korea faces increasing ELB risks due to demographic challenges, the paper evaluates unconventional monetary policy tools used by advanced economies and finds them ill-suited for Korea's circumstances. As an alternative, it proposes funding for lending schemes as a more targeted approach, drawing on Korea's long history of using such facilities since the 1980s and more recent experience during political uncertainty in 2024-2025. The paper also discusses conditional forward guidance as an additional communication tool. These findings contribute to ongoing discussions about expanding the IPF scope and provide insights for other countries navigating similar economic transitions.
Abstract
This paper examines Korea's relationship with the IMF's Integrated Policy Framework (IPF) and explores policy alternatives for emerging markets approaching the effective lower bound (ELB). The analysis traces Korea's unique evolution from emerging to advanced economy status, demonstrating how the country both benefited from and contributed to the development of IPF tools including foreign exchange intervention, capital flow management measures, and macroprudential policies. As Korea faces increasing ELB risks due to demographic challenges, the paper evaluates unconventional monetary policy tools used by advanced economies and finds them ill-suited for Korea's circumstances. As an alternative, it proposes funding for lending schemes as a more targeted approach, drawing on Korea's long history of using such facilities since the 1980s and more recent experience during political uncertainty in 2024-2025. The paper also discusses conditional forward guidance as an additional communication tool. These findings contribute to ongoing discussions about expanding the IPF scope and provide insights for other countries navigating similar economic transitions.