Korea’s Challenges Ahead—Lessons from Japan’s Experience

January 18, 2017

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Format: Chicago

Edda Zoli. Korea’s Challenges Ahead—Lessons from Japan’s Experience, (USA: International Monetary Fund, 2017) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper draws out the parallels between Korea and Japan in terms of demographics, potential growth, balance sheets, asset prices and inflation. Korea’s demographic trends seem to track Japan’s with a lag of about 20 years. Low productivity in the service sector and labor market duality are common to both countries and need to be addressed with structural reforms. While Korea’s corporate balance sheets are stronger than Japan’s in the early 1990s, Korea needs to progress with the restructuring of nonviable firms to avoid the adverse consequences of delayed balance-sheet repair that Japan experienced. Given its strong fiscal balance sheet position, Korea can afford using fiscal policy actively to incentivize corporate restructuring and structural reforms and cushion their possible short-term adverse impact. Korea can prevent bubbles in asset prices that were at the origin of Japan’s initial crisis with the continued use of macroprudential policies. Although Korea does not appear to be headed toward deflation, new econometric analysis presented in the paper suggests that aging will exert a downward drag on its inflation going forward.

Subject: Aging, Deflation, Financial statements, Inflation, Oil prices, Population and demographics, Prices, Public financial management (PFM)

Keywords: Aging, Balance sheets, Challenges ahead-lesson, Core inflation, Deflation, Financial statements, Global, Globalization indicators coefficient, Inflation, Inflation expectation, Inflation model, Inflation rate, Japan, Japan's experience, Japan's inflation, Korea's aging, Korea's inflation process, Oil prices, Output-inflation relationship, Potential growth, Price, Productivity, Regulatory burden, Stock market price, WP

Publication Details

Pages:

18
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/002
Stock No:

WPIEA2017002
ISBN:

9781475568882
ISSN:

1018-5941

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