Three empirical tests of transmission channels between real and financial sectors in South Korea.

Summary This thesis consists of three articles that are part of a single problematic on the interrelations between the financial and real sectors in South Korea. Our empirical analysis verified the proper functioning of some components of the transmission mechanism between the financial and real sectors. First, we found that the bank credit channel functioned as one of the transmission channels of monetary policy (Chapter 1). Second, we empirically verified that bank capitalization is an important factor in the transmission of monetary policy shocks (Chapter2). Finally, our analysis of the interaction between house prices and bank lending showed that there is a long-run relationship between house prices and bank lending (Chapter 3). As verified empirically in our analysis, the financial sector and the real sector are closely related through the financial or real shock. The results highlight the following points about monetary and supervisory policies. First, it is important for monetary policy to take into account capital regulation and its effect on the economy. Second, taking into account the fact that mortgage lending is very closely related to economic conditions in Korea, the instrument of macroprudential policy to reduce procyclicality is necessary. The central bank and the prudential authority can work together to develop these instruments.