Monetary–Fiscal Policy Interactions in Korea: A QPM-Based Analysis
IMF Working Papers, August 14, 2026
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- Monetary–Fiscal Policy Interactions in Korea: A QPM-Based Analysis
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Bibliographic details
- Authors: Alexander Borodin, Matteo Ghilardi, Tommy Lee, Victoria Petrenko
- Published: August 14, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229056519.001
Model and validation
- Develops a quarterly projection model for Korea with an integrated fiscal block to analyze monetary–fiscal interactions.
- Model validation approaches:
- Historical decompositions.
- Forecast evaluation.
Core findings from scenario analysis
- Debt-stabilizing fiscal rules versus no-rules comparison:
- Rules generate short-run procyclicality.
- Rules prevent permanent debt drift.
- Without rules, temporary nominal GDP movements cause lasting debt-to-GDP changes.
- For Korea:
- Facing age-related spending pressures, a medium-term fiscal framework could safeguard sustainability.
Key themes and mechanisms
- Interaction channels emphasized:
- Monetary policy shocks and monetary–fiscal interactions.
- Impact of temporary nominal GDP movements on public debt dynamics.
- Role of fiscal anchors and fiscal rules in stabilizing debt-to-GDP.
- Relevant shocks and factors considered:
- Supply shock.
- Energy inflation.
- Exchange rates.
- Output gap and inflation dynamics.
Policy implications and recommendations
- Implementing debt-stabilizing fiscal rules:
- Trade-off: accept short-run procyclicality to avoid permanent debt drift.
- Support for a medium-term fiscal framework in Korea to address age-related spending pressures and safeguard debt sustainability.
- Importance of integrating fiscal considerations into macroeconomic projection models to capture monetary–fiscal feedbacks.
Monetary–Fiscal Policy Interactions in Korea: A QPM-Based Analysis, by Alexander Borodin, Matteo Ghilardi, Tommy Lee, Victoria Petrenko; August 14, 2026.
Content in this bundle
- Working Paper