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Seoul Journal of Economics - Vol. 34 , No. 2

[ Article ]
Seoul Journal of Economics - Vol. 34, No. 2, pp.303-329
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 May 2021
Received 16 Apr 2021 Accepted 23 Apr 2021

Comparing the Effectiveness of the Monetary Policies in Korea and Japan
Sang-Kee Kim ; Geunhyung Yim
Sang-Kee Kim, Executive Director, Korea Deposit Insurance Corporation (former Chief Representative of the Tokyo Representative Office, Bank of Korea), 30, Cheonggyecheon-ro, Jung-gu, Seoul, Korea, Tel: +82-2-758-0006 (
Geunhyung Yim, Corresponding Author, Head, Research Planning & Coordination Team, Bank of Korea, 67, Sejong-daero, Jung-gu, Seoul, Korea, Tel: +82-2-759-5436 (

JEL Classification: E43, E52, E58


This study conducts a comparative analysis of the monetary policy transmission channels and their effects in Korea and Japan using a sign restriction VAR model to determine whether a Japanese-style monetary policy can be implemented in Korea. Results indicate considerable differences between Korea and Japan in their monetary policy transmission channels. Conventional monetary policy transmission channels, such as the exchange rate channel, asset price channel, and bank lending channel, works relatively well in Japan. However, in Korea, the interest rate channel is effective but has only a short-term effect on the exchange rate, and the effects on asset prices and bank lending are hard to expect in general. Furthermore, some potential risks working through the housing market may hinder financial stability. Korea and Japan see a limited effect on production in the real sector. These results imply that Korea must be careful about implementing a similar monetary policy as Japan.

Keywords: Monetary policy transmission channel, Unconventional monetary policy, Shadow policy rate


We would like to acknowledge Professor Hyeog Ug Kwon (Nihon University) and Seung-Gyu (Andrew) Sim (Aoyama Gakuin University) for their help in this paper. This paper contains the personal opinions of the authors and does not represent the official views of the Bank of Korea.

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