{
  "title": "What's in the R- Stars for Korea?",
  "publication": "IMF Working Papers, March 26, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262",
  "overlayPath": "/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/index.md",
  "summary": "Korea’s stars tell of an economy saddled with a real neutral rate (r-star) that has declined significantly in recent decades and is currently below zero.",
  "sections": [
    {
      "heading": "Executive summary",
      "content": "- Korea’s real neutral rate (r-star) has declined significantly in recent decades and is currently below zero.\n- The decline reflects a significant decline in trend growth and two large financial crises that triggered significant shifts in the saving-investment balance.\n- Larger fiscal deficits and frothy financial conditions since 2012 have helped offset rising demand for safer assets, preventing the neutral rate from falling further.\n- The fall in the neutral rate, and its effects on asset returns, has complicated the task of monetary policy stabilization.\n- Korea’s neutral rate is likely to remain low over the medium-term and could fall further due to structural factors and demographic rotation.\n- The COVID pandemic risks magnifying these trends."
    },
    {
      "heading": "Key findings and drivers",
      "content": "- Trend growth: A significant decline in trend growth is a primary driver of the fall in the neutral rate.\n- Financial crises: Two large financial crises produced significant shifts in the saving-investment balance contributing to lower r-star.\n- Demand for safe assets: Rising demand for safer assets has put downward pressure on r-star; this was partially offset by larger fiscal deficits and frothy financial conditions since 2012.\n- Structural savings-investment imbalance: Declining productivity and demographic rotation increase demand for precautionary saving and convenience yield, and contribute to widening capital risk premia."
    },
    {
      "heading": "Macroeconomic implications",
      "content": "- Monetary policy: A lower neutral rate complicates monetary policy stabilization through its effects on asset returns and the equilibrium real interest rate.\n- Medium-term outlook: Korea’s neutral rate is projected to remain low over the medium-term and could decline further if structural and demographic trends persist.\n- Risk amplification: The COVID pandemic may magnify the trends lowering r-star."
    },
    {
      "heading": "Subject tags and topical scope",
      "content": "- Financial crises; Financial services; Inflation; National accounts; Output gap; Prices; Production; Real interest rates; Return on investment.\n- Keywords highlighted in the source: author's email; Convenience; Demographics; Global; Inflation; Korea rate expectations decomposition; Neutral Rate; Output gap; Real interest rates; real rate of interest; Return on investment; Risk Premia; Savings; savings-investment imbalance.\n\nSohrab Rafiq. \"What's in the R- Stars for Korea?\", IMF Working Papers 2021, 093 (2021), accessed 9/16/2026, https://doi.org/10.5089/9781513575223.001\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/bundle-manifest.json)",
    "Authors: Sohrab Rafiq",
    "Published: March 26, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513575223.001",
    "Korea’s real neutral rate (r-star) has declined significantly in recent decades and is currently below zero.",
    "The decline reflects a significant decline in trend growth and two large financial crises that triggered significant shifts in the saving-investment balance.",
    "Larger fiscal deficits and frothy financial conditions since 2012 have helped offset rising demand for safer assets, preventing the neutral rate from falling further.",
    "The fall in the neutral rate, and its effects on asset returns, has complicated the task of monetary policy stabilization.",
    "Korea’s neutral rate is likely to remain low over the medium-term and could fall further due to structural factors and demographic rotation.",
    "The COVID pandemic risks magnifying these trends.",
    "Trend growth: A significant decline in trend growth is a primary driver of the fall in the neutral rate.",
    "Financial crises: Two large financial crises produced significant shifts in the saving-investment balance contributing to lower r-star.",
    "Demand for safe assets: Rising demand for safer assets has put downward pressure on r-star; this was partially offset by larger fiscal deficits and frothy financial conditions since 2012.",
    "Structural savings-investment imbalance: Declining productivity and demographic rotation increase demand for precautionary saving and convenience yield, and contribute to widening capital risk premia.",
    "Monetary policy: A lower neutral rate complicates monetary policy stabilization through its effects on asset returns and the equilibrium real interest rate.",
    "Medium-term outlook: Korea’s neutral rate is projected to remain low over the medium-term and could decline further if structural and demographic trends persist.",
    "Risk amplification: The COVID pandemic may magnify the trends lowering r-star.",
    "Financial crises; Financial services; Inflation; National accounts; Output gap; Prices; Production; Real interest rates; Return on investment.",
    "Keywords highlighted in the source: author's email; Convenience; Demographics; Global; Inflation; Korea rate expectations decomposition; Neutral Rate; Output gap; Real interest rates; real rate of interest; Return on investment; Risk Premia; Savings; savings-investment imbalance.",
    "**Working Paper**"
  ],
  "related": [
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021093-print-pdf.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2021/english/wpiea2021093-print-pdf.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2021/english/wpiea2021093-print-pdf.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/index.md",
    "json": "/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/index.json",
    "bundleManifest": "/en/publications/wp/issues/2021/03/26/what-is-in-the-r-stars-for-korea-50262/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-16T19:17:10.335Z"
}