Global Economic Crisis

Global Economic Crisis

Impacts, Transmission and Recovery

KDI/EWC series on Economic Policy

Edited by Maurice Obstfeld, Dongchul Cho and Andrew Mason

The expert contributors compare the recent crisis with earlier crises, explore international aspects of the crisis from the perspectives of financial markets and trade, and examine macroeconomic policy responses. In so doing, they address important questions including: How did this crisis differ from those suffered previously? How and why did flaws in financial markets contribute to the crisis? How important were global imbalances and global overheating in explaining the global meltdown? Did different pre-crisis fundamentals generate different post-crisis performances? And, how severe were the economic shocks to countries such as Korea and other emerging economies?

Chapter 9: Macroeconomic Policies of Korea to Cope with the Crisis

Hyeon-Wook Kim

Subjects: economics and finance, financial economics and regulation, international economics


Hyeon-Wook Kim INTRODUCTION The global financial crisis that began in 2008 has been characterized as the greatest economic turmoil since the Great Depression of the 1930s. Amid this crisis, the Korean economy experienced a period of sudden contraction followed by fast recovery. A severe credit squeeze shook global financial markets, causing a contraction of every economy in the world. Korea was no exception, due to its high dependency on the export sector. Consequently, Korea’s financial markets, including the foreign exchange market, were thrown into a state of near panic, and the growth rate for the fourth quarter of 2008 plunged to 24.5 percent. The Korean economy successfully bottomed out from the recession triggered by the crisis, and the pace of recovery was faster than anticipated. The assessment of Korea’s recovery, both in Korea and abroad, was remarkably positive within a year of the onset of the crisis, and subsequently the economy entered a stabilization phase, normalizing the pace of recovery. It became obvious that the recovery was based on the stabilization of the global financial market and the improvement of the world trade environment, as each country implemented unprecedented expansionary policies to respond to the recession. In Korea, the process of restructuring, which had been carried out steadily since the financial crisis of 1997–98, gave the economy enhanced capacity to respond to the crisis sector by sector and prevented a prolonged recession. In addition, the Korean government’s comprehensive and timely implementation of policies contributed to making the recovery faster...

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