Risks of Short-termism in Macro-prudential Policy Making: The Case of Household Debt in Korea
- Korea's household debt continues to be a major economic risk despite countermeasures, necessitating a thorough overhaul of the current macro-prudential management system. - The debt expanded to 1,514 trillion won in 3Q 2018 from a decade ago (713 trillion won in 2008), considerably exceeding the income growth during the same period. - The rapid increase suggests that past policy measures have been ineffective in achieving a soft landing. - This study adopts a political economy perspective to determine the obstacles to past macroprudential policies, which can be effective tools in terms of credit risk management, and suggests directions for improvement. - It was found that the more fixated policy makers are on the short-term gains in growth and employment, the less likely they are to seek macro-prudential policies for financial stability. - Short election cycles can narrow the horizon of policy decisions, hence policy makers often pursue those with immediate outcomes to earn the public's favor―even if they entail negative fallouts. - The failure to implement suitable and timely macro-prudential policies will increase the probability of a credit boom-driven crisis and restrict the scope of mid- to long-term economic policies. - To improve the macro-prudential management system, its institutional basis needs to be consolidated to prevent the policy horizon from becoming narrower. - An institutional mechanism should operate the macro-prudential management system in correspondence with the mid- to long-term preference of the national economy. - More practical measures should be considered and adopted which could strengthen public accountability and the operational independence of the macro-prudential management system.
Year of publication: |
2019
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Authors: | Kim, Youngil |
Publisher: |
Sejong : Korea Development Institute (KDI) |
Saved in:
freely available
Series: | KDI Policy Forum ; 272 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Research Report |
Language: | English |
Other identifiers: | 10.22740/kdi.forum.e.2019.272 [DOI] 1681071614 [GVK] hdl:10419/200915 [Handle] RePEc:zbw:kdifor:272 [RePEc] |
Source: |
Persistent link: https://www.econbiz.de/10012034923
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