Countering the Cycle - The Effectiveness of Fiscal Policy in Korea

Author/Editor: Eskesen, Leif Lybecker
Publication Date: November 01, 2009
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The Korean authorities having taken decisive and proactive fiscal measures to help stem the fallout from the current global economic and financial crisis, with the size of the fiscal stimulus well-above the average response of other G20 economies. In this context, a key question is how effective fiscal policy is as a stabilization tool, especially considering the high openness of Korea's economy. Results based on a macroeconomic model calibrated for Korea provide a strong case for using counter-cyclical fiscal policy, especially if measures appropriately focus on spending with a direct demand impact such as investment and targeted transfers. It also demonstrates the importance a complementary monetary response and the benefits to an open economy such as Korea's of global coordination of fiscal stimulus.
Series: Working Paper No. 09/249
Subject(s): Business cycles | Consumption | Cross country analysis | Economic models | Financial crisis | Fiscal policy | Global Financial Crisis 2008-2009 | Government expenditures | Korea, Republic of | Monetary policy | National income | Public investment

Author's Keyword(s): Fiscal policy | macroeconomic models
Publication Date: November 01, 2009
Format: Paper
Stock No: WPIEA2009249 Pages: 28
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