KOR

Research Staff

Research Staff

Baek, In Seok Senior Research Fellow, Head of Macro-Financial Analysis
Research Field

Profile

TEL
82-2-3771-0633
E-mail
bis@kcmi.re.kr
Education
Ph.D., Finance, KAIST, Graduate School of Management
M.Engneering, KAIST, Department of Industrial Management
B,Econ., Korea University, Department of Statistics
Professional Experience
Samsung Asset Management, 2007-2011

Publications

Opinion

Globalization in Retreat and a Potential Shift in Inflation Dynamics / Dec. 19, 2023
The recent surge in global inflation, prompted by the pandemic and the Russia-Ukraine war, shows signs of stabilization. The slowdown in inflation is expected to persist, driven by measures such as monetary tightening. However, a potential return to the low inflation era remains uncertain from a long-term perspective. The shift toward deglobalization represents a strong economic structural change that can reshape the prevailing inflation trend, given that globalization has contributed to maintaining low inflation by reducing structural costs and intensifying corporate competition since the 1990s.The low inflation regime can be understood in the context of the downward stabilization of trend inflation. Trend inflation in Korea and the US plunged in the 1990s, marked by hyper-globalization, and remained stable before the COVID pandemic. The analysis of the impact of economic structural variables on trend inflation suggests that the decline in trend inflation during the hyper-globalization period was triggered primarily by globalization. It indicates that the global low inflation environment, which has persisted since the 1990s, can be attributed to the advancement in globalization.Apart from the debate about whether deglobalization is fully initiated, it should be noted that free trade and geopolitical stability—key conditions for the effects (efficiency) of globalization—have been significantly compromised. The retreat from globalization implies the potential end of the low inflation regime. Despite some side effects, the low inflation trend has provided various benefits to economic agents and financial markets. It is worth considering that any change in the inflation regime could pose significant challenges to the global economy and financial markets. Hence, proactive measures should be taken to prepare for potential difficulties arising from an inflationary shift.
A Comparative Look at the Impacts of Korean and US Policy Rate Hikes from the Perspective of Market Rates, and the Implications / Jul. 11, 2023
In the June FOMC, the US Fed halted its rate hike for the first time after March 2022. Given the recent inflation trends and economic conditions, both the US and Korea could have neared their end of their rate hike cycle. Against the backdrop, this article explored the impacts of both countries’ policy rate hikes on long-term government bond yields during this monetary tightening cycle.During the recent rate hike cycle, the increase in US government bonds resulting from a series of policy rate hikes was evidently low as compared to Korea. The US saw Treasury yields rising much less than during their past rate hike cycles. This could imply a potential decrease in the impact of key rate hikes on Treasury yields. A major culprit behind this could be a recent phenomenon of the unprecedentedly low level of Treasury term premia in the aftermath of cumulative QE.  The Fed appears to maintain quantitative tightening while freezing its benchmark rate. QT–if prolonged–could weaken the cumulative effects of QE, and thus broaden term premia. Hence, it is necessary to pay attention to the changes in term premia as much as monetary policy as one of the determinants of Treasury yields. Treasury yields affect Korea via the term premium path. Even if both Korea and the US freeze their policy rate, a rise in US term premia could work as an upward factor for Korea’s government bond yields. It is worth noting that an increase in US term premia could limit the effectiveness of domestic monetary policy. Furthermore, the diminished impact of the US policy rate on long-term interest rates is believed to have contributed to the widening rate reversal between Korea and the US. The fact that the primary cause behind the rate reversal lies in the US means greater hardship for Korea's monetary policy responses. This requires Korea to come up with ways to cope with a potential rise in exchange rate volatility.
Rising Government Bond Yields: Assessment and Implications / Jan. 03, 2023
Government bond yields are showing a sharp upward movement. Higher yields pose an obstacle to household and corporate financing activities and lead to a plunge in prices of risky assets such as stocks and real estate property, aggravating a burden for the economy and financial market. In this regard, concerns have been raised over whether the recent rise is a transitory phenomenon or a combined result of structural factors.This article has decomposed the root cause of government bond yield changes into trend and temporary (cyclical) factors and examined how each factor makes a contribution to the latest run-up. According to the analysis, this round of yield increases has been far more influenced by the trend interest rate that is determined by the potential growth rate and trend inflation, rather than the temporary cyclical factor related to monetary policy. This implies that the latest surge is hardly short-lived.In the meantime, trend-related escalating inflation has been considered the driving force behind the rise in the trend interest rate. Accordingly, a downward inflation trend must gain momentum promptly to ensure that the trend interest rate-which has primarily pushed up interest rates-is on the decline. Amid various opinions about future inflation developments, there is a possibility that structural factors-de-globalization, shrinking working-age population and accelerating responses to climate change-would prevent the economy from regaining the low-price stance, which requires caution.Since the global financial crisis, the low interest rate environment has had lasting effects on the economy and financial market through a wide range of channels. Currently, it remains unclear whether the economy could go back to the low interest rate stance. What is needed in this respect is preparation for potential challenges posed by the prolonged high interest rate period.
Korea Overnight Financing Repo Rate (KOFR): Significance and Challenges Ahead / Jul. 12, 2022
As the phase-out of LIBOR has started this year, the benchmark rate reform initiated by major economies from 2012 has entered its final stage. Although progress in the reform varies by nation, the US, the UK and other economies have successfully replaced LIBOR with a risk-free reference rate (RFR). This has increased the possibility that RFRs, instead of quote-based benchmarks, would take hold as a critical reference rate in the global financial market. Korea has selected an overnight Repo rate as the Korea Overnight Financing Repo rate (KOFR) through the 2019 benchmark reform and has started computing and officially publishing KOFR since November 2021. KOFR publication can be seen as a milestone in paving the way for the benchmark reform in Korea. In this regard, systematic efforts should be made by market participants and the government to ensure that KOFR would be established as a critical benchmark in Korea.

Seminar Presentation

관련 세미나 이미지
2019 May 28
Economic and Capital Market Outlook for 2H 2019 (Korean)
  • Presenter Senior Research Fellow Kang, Hyunju and others
관련 세미나 이미지
2018 May 31
Global Regulatory Trend and Korea’s Policy Direction Towards Financial Benchmarks (Korean)
  • Presenter Senior Research Fellow Baek, In Seok
관련 세미나 이미지
2018 Jan 24
Macroeconomic Outlook and Key Issues for 2018 (Korean)
  • Presenter Senior Research Fellow Baek, In Seok
관련 세미나 이미지
2017 Feb 09
Global Regulatory Trends on Money Market Reform (Korean)
  • Presenter Senior Research Fellow Baek, In Seok

Research performance

“The Role of Stochastic Volatility and Return Jumps: Reproducing Volatility and Higher Moments in the KOSPI 200 Returns Dynamics,” with In Joon Kim, Jaesun Noh, and Sol Kim, 2007, Review of Quantitative Finance and Accounting, 29, 1, 69?110. 

“Recent Advances in Asset Pricing,” with Dong?Hyun Ahn, Seonghwan Oh, Sun?Joong Yun, 2010, Journal of Money and Finance, 24(3), 65?116. 

“The?Dynamic?Behavior?of?Foreign?Exchange?Rates?with?Stochastic?Volatility?and?Jump?Diffusion?Models:?Evidences?from?KRW/USD?Spot?and?Option?Markets,”?with?Byung?Jin?Kang,?2011,?Korean?Journal?of?Futures?and?Options,?19(1),?1?36.? 

“Comovements?of?International?Term?Structure?Slopes?and?Affine?Term?Structure?Models,?with?Won?Tark?Doh,?2011, Seoul?Journal?of?Economics, 24(3), 389-426.? 

[Working Papers] 
Can We Explain the Sign-Switching Behavior of Cross-Country Interest Rate Correlations? with Dong-Hyun Ahn and A. Ronald Gallant, 2011, Economic Research Initiatives at Duke (ERID) Working Paper Series, No. 56.