Three Key Discussion Points After COVID-19 Identified by the Bank of Korea Economic Research Institute

[Asia Economy Reporter Kim Eun-byeol] It has been pointed out that policy responses need to be considered, taking into account that the impact of the novel coronavirus infection (COVID-19) is showing different patterns from past crises and that its effects are prolonged.

On the 21st, the Bank of Korea Economic Research Institute highlighted key points in the 'BOK Issue Note - Discussion and Implications on Major Macroeconomic Issues Related to COVID-19,' including ▲whether to add or extend monetary and fiscal policies ▲seeking harmony between quarantine and economic policies ▲research on changes in the economic structure after the end of the pandemic.

It stated that major countries, including Korea, have implemented bold and diverse measures in response to COVID-19, but since the situation remains ongoing, policy discussions are necessary.

First, regarding monetary and fiscal policies, although there were concerns that large-scale liquidity could cause inflation in the future, recent studies suggest that unless new shocks causing inflation occur, there is no need to excessively fear inflation. The report said, "Monetary policy should focus on promoting economic recovery and achieving price stability targets, while fiscal policy should emphasize promoting economic recovery and enhancing growth potential. However, given the high uncertainty, it is necessary to continuously review whether additional or extended policies related to liquidity and solvency are needed."

Additionally, the report added, "Quarantine policies and economic policies should be considered as complementary rather than conflicting, and ways to harmonize them should be sought."

From a mid- to long-term perspective, it emphasized the need to strengthen monitoring and research on changes in domestic and international economic environments and structures after the pandemic ends, to early identify changes in monetary policy conditions and contribute to expanding long-term growth potential.

Regarding the contraction of the Global Value Chain (GVC), it noted that the degree of contraction may not be as severe as initially feared at the beginning of COVID-19. It cited reasons such as production being maintained through diversification of supply sources even as GVC shocks continue, the international cooperation structure being unrelated to COVID-19, and the possibility of responding with smart GVCs combining artificial intelligence (AI), machine learning, and big data.

This content was produced with the assistance of AI translation services.