## Recent Shifts in Capital Flow Patterns in Korea: An Investor Base Perspective

_IMF Working Papers, November 27, 2019_

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## Bibliographic details
- Authors: Niels-Jakob H Hansen, Signe Krogstrup
- Published: November 27, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513519937.001

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### Executive summary
- Korea’s cross border capital flows have tended to respond negatively in global risk-off episodes, resulting in volatility in the foreign exchange market and occasional policy responses in the form of foreign exchange interventions.
- The study covers the relationship between Korean capital flows and global volatility up to 2018.
- Over time, the response of capital flows during risk-off episodes has become more muted.
- Occasional safe-haven type flows into Korean bond markets have helped counterbalance the tendency for portfolio investors to leave.
- Changing flow patterns are related to shifts in Korea’s domestic investor base.
- The paper discusses whether these changes reflect a sustained shift in the sensitivity of Korea’s capital flow pressures to global risk-off episodes and the implications for monetary and exchange rate policies.

### Key findings
- Capital flows to Korea historically react negatively during global risk-off episodes, amplifying FX market volatility and prompting occasional FX interventions.
- The magnitude of capital flow responses during risk-off episodes has declined over time (response has "become more muted over time").
- Safe-haven type inflows into Korean bond markets intermittently offset portfolio investor outflows.
- Shifts in Korea’s domestic investor base are an important factor in changing capital flow patterns.
- The analysis considers persistence of these shifts and policy implications for monetary and exchange rate frameworks.

### Policy implications and discussion points
- Monitor evolving investor base composition as it can alter vulnerability to global risk-off episodes.
- Evaluate the role of FX intervention given changing flow dynamics and intermittent safe-haven inflows into domestic bond markets.
- Consider monetary and exchange rate policy adaptations in light of potentially lower sensitivity of capital flow pressures to global risk-off episodes.

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_Source: https://www.imf.org/en/publications/wp/issues/2019/11/27/recent-shifts-in-capital-flow-patterns-in-korea-an-investor-base-perspective-48767_