Lee Chang-yong "Cannot Rule Out Long-Term Low Growth After Inflation Eases" (Comprehensive)

Mentioned at BOK International Conference
"Policy Measures for Low Inflation and Low Growth
Challenges to Address Going Forward"

[Asia Economy reporters Seo So-jung and Moon Je-won] "When this inflation subsides, it cannot be ruled out that a low inflation and low growth environment will emerge in some emerging countries facing population aging issues, such as Korea, Thailand, and China."

Lee Chang-yong, Governor of the Bank of Korea, stated this during the opening remarks of the BOK International Conference held on the 2nd at the Westin Chosun Hotel in Jung-gu, Seoul, under the theme "The Changing Role of Central Banks: What Can and Should Be Done." He said, "I cannot yet confidently say whether the long-term secular stagnation trend will reappear once inflation subsides."

The governor analyzed, "If low inflation and low growth occur, I wonder whether, as Professor Paul Krugman advised advanced country central banks, Korea and other emerging countries should also make an almost irresponsible firm commitment to continue accommodative monetary policy. The use of unconventional policy tools like those in advanced countries could lead to expectations of currency depreciation, increasing the possibility of capital outflows, so emerging countries must act more cautiously and conservatively in monetary policy operations."

He added, "If expansionary policies similar to those during the COVID-19 crisis recovery are implemented again without support from global liquidity, the implications for capital flows and inflation expectations will be quite different. It is not easy to find a clear answer on what effective unconventional policy tools tailored for emerging countries in a low inflation and low growth phase would be, and this remains a challenge to be addressed going forward."

Meanwhile, at the conference, an analysis attracted attention that, although the recent sharp rise and high volatility in commodity prices are stimulating inflation, the possibility of a recurrence of severe stagflation like that in the 1970s is low due to decreased oil dependence.

Shin Hyun-song, Head of the Research Department at the Bank for International Settlements (BIS), stated, "The recent rise in commodity prices is broader in scope than in the 1970s, but the oil price shock is relatively limited. Central banks around the world need to continue policy normalization to prevent the rising inflationary pressures from translating into higher inflation expectations." The share of crude oil in global energy consumption fell from 50% in the late 1970s, when stagflation was severe, to about 30% in 2020, while the share of renewable energy rose from 6% to 16%.

Furthermore, there was a proposal to issue global safe asset bonds backed by sovereign bonds of emerging and developing countries to prevent capital outflows caused by interest rate hikes. On the day, Marcus Brunnermeier, Professor of Economics at Princeton University, USA, said, "As an alternative to mitigate instability in international financial markets, issuing global safe asset bonds backed by sovereign bonds of emerging and developing economies (EMDEs) to diversify the supply of safe assets could prevent capital concentration in advanced countries."

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