KOREA CAPITAL MARKET INSTITUTE

This paper provides a comprehensive review of unconventional monetary policy in advanced economies after the global financial crisis. It is a consensus that unconventional monetary policy such as forward guidance and quantitative easing contributed to reduce the negative impact of financial crisis on financial market and real economy. Moreover, it generated large capital flows to emerging market economies during 2009~2012. While other economies remain sluggish, US economy is approaching the normal state and the Fed is taking steps toward the exit from unconventional monetary policy. In 2013, when the Fed announced its intention to taper large asset purchases, financial markets responded adversely and several emerging market economies experienced financial turmoils. However, when the Fed actually reduced its asset purchases in a gradual pace in 2014, the response of financial market was rather modest. As the Fed finished its asset purchases recently, focus shifts to the degree and the speed of its policy rate normalization path. Uncertainty can increase if the Fed fails to align market expectations with its future policy path. This uncertainty can pose a serious risk to emerging markets, including Korea.