Risks of Short-termism in Macro-prudential Policy Making: The Case of Household Debt in Korea

Abstract

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.