Inhwan So
Senior Economist
Economic Research Institute, Bank of Korea
Email: ihsoh [at] bok [dot] or [dot] kr
This is Inhwan's private site, and any views expressed below cannot be taken to represent those of the Bank of Korea.
Fields
International Finance, Open Economy Macroeconomics, Monetary Policy, Uncertainty, Asset Pricing, Banking
Publications
The Economic Effects of Global Inflation Uncertainty (with J. Ha), International Journal of Central Banking, 20:2, pp.69-150, 2024 [Final WP version] [slides]
Stock Returns and Monetary Policy Stance (with B. Jang), International Review of Economics and Finance, Vol. 92, pp.851-869, 2024 [Final WP version] [slides]
Which Monetary Shocks Matter in Small Open Economies? Evidence from Canada (with J. Ha), International Journal of Central Banking, 19:2, pp.389-472, 2023 [Final WP version] [slides] (substantially revised from [BOK WP (No.2017-2) version])
Global Confidence, Uncertainty, and Business Cycles (with J. Ha), International Journal of Central Banking, 19:1, pp.451-495, 2023 [Final WP version & Online Appendix] [slides] [AEA poster]
US Structural Drivers of International Portfolio Returns (with B. Jang and E. Tong), The North American Journal of Economics and Finance, 64, 101872, 2023 [Final WP version] [slides]
The Impact of Uncertainty Shocks: Evidence from Geopolitical Swings in Korean Peninsula (with J. Ha and S. Lee), Oxford Bulletin of Economics and Statistics, 84:1, pp.21-56, 2022 [Final WP version] [Online Supplementary Materials] [slides] (substantially revised from [BOK WP (No.2018-26) version])
Influence of the Banks' Money Mediation Behavior on the Monetary Policy: A Study of Korean Case (with J. Ha), Global Economic Review, 42:4, pp.396-424, 2013
(In Korean)
Constructing the Nowcasting Model for Regional Economic Conditions: the Case of Busan (with K. Kim and S. Moon), The Korean Journal of Economic Studies (경제학연구, forthcoming) [Manuscript] [BOK Golden Book (Sep. 2023) version]
Uncovering Regional Economic Fluctuations by Factors and Their Impacts on the Regional Confidence Cycle: Evidence from Busan (with C. Lim and S. Moon), The Korean Journal of Economic Studies (경제학연구), 71:3, pp.5-35, 2023 [BOK Golden Book (Dec. 2022) version]
Impacts of US Monetary Policy on Domestic Bond and FX Swap Markets (with Y. Kwon and M. Kim), Economic Analysis (경제분석), 27:1, pp.1-36, 2021 [Monthly Bulletin (Jan. 2020) version]
Capital Flow and Monetary Policy Effectiveness in Korea, Review of International Money and Finance (국제금융연구), 10:2, pp.39-75, 2020 [English translated version]
Analysis on the Impact of Foreign Position to Foreign Exchange and Stock Market Volatility (with S. Park), Review of International Money and Finance (국제금융연구), 10:2, pp.5-38, 2020 [English translated version] [Monthly Bulletin (Feb. 2019) version]
Analysis of the Relationship between Negative Interest Rate and Bank Profitability (with J. Han), Economic Analysis (경제분석), 24:2, pp.55-88, 2018
(Other professional publications)
Local Currency Bond Returns in Emerging Market Economies and the Role of Foreign Investors (with G. Valante and J. Wu), BIS Papers, No. 102, pp.83-91, Apr. 2019 [HKIMR WP (No.10/2019) version]
Effects of the National Pension Fund and Ageing on Private Consumption and Savings (written in Korean) (with H. Kang), Bank of Korea Monthly Bulletin, pp.23-61, Dec. 2005 [Summary in English]
Working Papers
Monetary and Central Bank Information Shocks: Tales from Alternative Identifications (with B. Jang) [Manuscript] [slides]
Jarocinski and Karadi (2020) proposed a straightforward method to deconstruct monetary policy surprises into pure monetary policy shocks and central bank information shocks by exploiting the opposite-signed comovement between stock price surprises and the two shocks. They highlighted that the shocks bring about significantly different effects on the economy. Expanding upon their approach, this paper examines and compares a variety of alternative instruments, including New Keynesian- and Fama-French factor-based, for the decomposition of monetary policy surprises. Our results collectively suggest that Fama-French's High-minus-Low factor is a valuable navigator, almost comparable to stock price surprises.
Leading the Herd: Investment Giants and Their Impacts in Emerging Equity Markets (with D. Kim and J. Park) [Manuscript] [slides]
This paper investigates the investment decisions of institutional investors (mutual funds) in emerging equity markets, with a particular focus on the influence of dominant investors, often referred to as 'investment giants,' on other investors and aggregates. By employing local projection regressions on monthly fund-level data, we reveal significant impacts of investment giants on international equity flows into emerging markets, especially pronounced in the post-Global Financial Crisis period. These impacts demonstrate that investment giants' flows have predictive power for future equity flows and stock market indices. Our findings collectively suggest the potential value of monitoring the movements of investment giants as early warning indicators for impending collapses in emerging equity markets.
Heterogeneous Regional Effects of Monetary Policy: Evidence from Korea (with S. Park and H. Joo), R&R requested from Journal of Asian Economics [Manuscript] (substantially revised from [BOK Golden Book (June. 2023) version (in Korean)])
Using regional panel data from Korea, this paper investigates the differential impact of monetary policy on output, consumption, and employment by region. Depending upon distinctive regional characteristics, the effects of monetary policy are heterogeneous across regions. Specifically, regions with a lower share of manufacturing, a lower income level, a higher proportion of elderly population, and a higher household debt ratio exhibit more pronounced responses in output, consumption, and employment to monetary policy shocks. Further, we show that the share of net exports, share of small businesses, and share of non-wage workers are pivotal factors that drive the primary results. These findings imply that vulnerable regions may experience a stronger impact from recent rapid interest rate hikes, underscoring the importance of supplementary fiscal support for the regions.
Bank Globalization and Monetary Policy Transmission in Small Open Economies, R&R requested from International Journal of Central Banking [Manuscript] [BOK WP (No.2017-33) version]
This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.
Local Currency Bond Returns, Foreign Investors and Portfolio Flows in Emerging Markets (with G. Valente and J. Wu) [Manuscript] (under revision)
This study, building upon theoretical frameworks incorporating portfolio decisions of institutional investors and fund flows, proposes a conditional asset pricing model to explain the cross-section local currency bond returns in emerging markets. We find that bonds whose returns covary positively (negatively) with the returns on foreign investors’ portfolios exhibit higher (lower) average returns. The price of this type of risk increases with capital outflows, and bonds whose returns are higher on average exhibit a higher exposure when the price of risk is high. These results have important implications for the development of the local currency bond market.
Selected Work in Progress
Global Confidence Cycle: News Shocks or Animal Spirit? (with J. Ha) [Manuscript] (under revision)
There are two conflicting views, the animal spirit and news views, regarding the impact of economic confidence on business cycle fluctuations. This study estimates a structural VAR model of five global indicators with medium-run restrictions to examine the role of global consumer shocks which are decomposable into the three different types of shocks - surprise productivity, news, and sentiment. The results indicate that global consumer confidence shock is a combination of demand and supply shocks, reflecting news on future productivity and global economic sentiments based on animal spirit. Consistent with existing theories, news productivity shocks led to a persistent increase in global industrial production while reducing global inflation. On the other hand, global sentiment shocks unambiguously raised industrial output, inflation, and interest rates simultaneously. In the short run, both news productivity and economic sentiment shocks significantly impacted consumer confidence. The results are robust to the inclusion of various types of uncertainty shocks and indicate that the sentiment shocks are different from uncertainty shocks.
International Transmission of Confidence Shocks (with J. Ha) [Manuscript] (under revision)
This paper investigates the role of global confidence cycles, measured as the common factor across a wide range of business or consumer confidence indicators, played in macroeconomic and financial fluctuations across 40 countries. We employ a factor-augmented vector autoregression model, where global confidence shocks are identified through recursive restrictions. Our results reveal two principal findings. First, the global confidence cycle has acted as a key driver in macroeconomic fluctuations, accounting for more than a quarter of total variation in industrial production and unemployment rates over 1985-2019, based on median across countries. Second, the transmission of global confidence shocks to domestic variables was significant in most countries although it was more pronounced in advanced economies than in emerging market and developing economies.
Role of Global Uncertainty: Evidence from COVID-19 Pandemic (with J. Ha) [Manuscript] (under revision)
By estimating a wide range of factor-augmented vector autoregression models, this study investigates the impact of global uncertainty on global financial asset and oil prices during the COVID-19 pandemic. The results suggest that the global uncertainty shock accounted for between a third to three fifths of the total variations in the variables following the pandemic, with impacts two to four times as sizeable as those assessed based on the pre-pandemic period. The shocks were demand-driven in nature; higher global uncertainty was associated with significant declines in global stock prices, implied inflation, and oil prices. However, the shocks led to significant rise in global interest rates, reflecting increased term and risk premia.
Financial Market Effects of Asset Purchase Programs in Emerging Markets: An Early Assessment (with J. Ha and G. Kindberg-Hanlon) [Manuscript] (under revision)
Central banks in some emerging market and developing economies (EMDEs) have employed asset purchase programs, in many cases for the first time, in response to pandemic-induced financial market pressures. Using panel regressions, this paper examines the effects of recent announcements of asset purchase programs (APP) on financial market developments in EMDEs. The results suggest that the asset purchase programs in EMDEs have been more effective at lowering government and private sector bond yields and sovereign CDS than announcements of policy rate cuts and spillovers from advanced-economy asset purchase announcements. The reduction in bond yields driven by APP announcements was largest in economies with higher consumer price inflation, initial bond yields, and CDS spreads and did not result in currency depreciation on average. The effects are consistent with reduced risk premia being a key channel for the operation of EMDE APPs.
Wedge in Euler Equation, Monetary Policy and Net Foreign Asset Position in Small Open Economies (with D. Kim) [Manuscript] (under revision)
This paper studies the wedge between the interest rate implied by Euler equation and money market rate in five small open economies – Australia, Canada, Finland, Korea, and the U.K. Standard Euler equation predicts strongly positive relationship between the two interest rates. However, data shows significantly large wedge between them, which causes negative correlation. We explore the systemic link between the wedge and two possible influencing factors – monetary policy and net foreign asset position. The empirical results from our analysis deliver the important message that the wedge is closely related to net foreign asset position in open economies, while its relationship to the stance of monetary policy has mixed results.