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What Explains Current Account Surplus in Korea?

dc.contributor.authorHan Chirok
dc.contributor.authorShin Kwanho
dc.description.abstractSince the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently the current account surplus increased more rapidly amounting to 7.7% of GDP in 2015. In this paper, we investigate the underlying reasons as to why Korea’s current account surpluses are widening. We find that the upward trend in Korea’s current account surpluses is essentially explained by its demographical changes. Demographical changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland and Greece as well. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, in order to reduce current account surplus by 1 percentage point, a whopping 12% depreciation is needed. If Korea’s current exchange rate is undervalued 4 to 12 percent than the level consistent with fundamentals, it is impossible to reduce Korea’s current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.
dc.publisherKorea Institute for International Economic Policy
dc.titleWhat Explains Current Account Surplus in Korea?
dc.typeWorking Papers
dc.subject.expertMacroeconomic Analysis
dc.subject.expertMacroeconomic Framework
dc.subject.expertMacroeconomic Models
dc.subject.expertMacroeconomic Performance
dc.subject.expertMacroeconomic Planning
dc.subject.expertMacroeconomic Policies
dc.subject.expertMacroeconomic Reform
dc.subject.expertMacroeconomic Stabilization
dc.subject.expertResults-Based Monitoring And Evaluation
dc.subject.expertProject Evaluation & Review Technique
dc.subject.expertProject Evaluation
dc.subject.expertProgram Evaluation
dc.subject.expertPerformance Evaluation
dc.subject.expertOperations Evaluation
dc.subject.expertEvaluation Methods
dc.subject.adbSocial condition
dc.subject.adbEconomic dependence
dc.subject.adbEconomic assistance
dc.subject.adbInternational monetary relations
dc.subject.adbInternational monetary relations
dc.subject.adbInternational trade
dc.subject.adbNational accounting
dc.subject.adbProject impact
dc.subject.adbDevelopment projects
dc.subject.adbProgram management
dc.subject.adbPerformance appraisal
dc.subject.adbProject appraisal
dc.subject.adbTechnology assessment
dc.subject.adbEconomic indicators
dc.subject.adbGrowth models
dc.subject.adbGross domestic product
dc.subject.adbEconomic forecast
dc.subject.naturalComparative economics
dc.subject.naturalIndex number
dc.subject.naturalMonetary policy
dc.subject.naturalValue analysis
dc.subject.naturalAdjustment cost
dc.subject.naturalTransaction cost
dc.subject.naturalInternational relations
dc.subject.naturalCumulative effects assessment
dc.subject.naturalGrievance procedures
dc.subject.naturalParticipatory monitoring and evaluation
dc.subject.naturalExchange rate
dc.subject.naturalEconomic development projects
dc.subject.naturalEconomic policy
dc.subject.naturalEconomic forecasting
dc.title.seriesKIEP Working Paper
dc.contributor.imprintKorea Institute for International Economic Policy
oar.adminregionEast Asia Region
oar.countryRepublic of Korea
oar.authorChirok, Han
oar.authorKwanho, Shin

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