The Korean Economic Forum
Secular Stagnation and Financial Stability
Jongheuk Kim (Former Research Fellow at Financial Supervisory Service)Year 2017Vol. 10No. 1
This paper tries to explain a definition and important features of asecular stagnation and to examine how this concept can be possiblyapplied to Korean macroeconomy and financial stability. Furthermore, thepaper uses macroeconomic data to find a related policy implication. Secularstagnation is characterized by a stagnated status of potential GDP growthrate in long term which is caused by decreases in population growth rateand total factor productivity, an exacerbated income inequality, or anincrease in fiscal deficit. During this type of crisis, there is a highprobability of a systemic risk because a total asset supply is increased dueto a low interest rate environment and a preference system between riskyand risk-free assets is disordered. In Europe, after 2008 financial crisis,there has been growing concerns about a possibility of this type of crisis,and Japan has already showed some symptoms of the secular stagnation.In Korea, there are some potential factors which can possibly cause thesecular stagnation, although the nation seems to experience a structuralchange in its economic system in recent years and it has enough policytools to prevent the systemic risk possibility such as fiscal andmacroprudential policies. To minimize the possibility of the secularstagnation, more aggressive fiscal stimulus is required, and some usefulmacroprudential tools such as credit control in a specific sector should beconsidered as well.