This paper tries to explain a definition and important features of a
secular stagnation and to examine how this concept can be possibly
applied to Korean macroeconomy and financial stability. Furthermore, the
paper uses macroeconomic data to find a related policy implication. Secular
stagnation is characterized by a stagnated status of potential GDP growth
rate in long term which is caused by decreases in population growth rate
and total factor productivity, an exacerbated income inequality, or an
increase in fiscal deficit. During this type of crisis, there is a high
probability of a systemic risk because a total asset supply is increased due
to a low interest rate environment and a preference system between risky
and risk-free assets is disordered. In Europe, after 2008 financial crisis,
there has been growing concerns about a possibility of this type of crisis,
and Japan has already showed some symptoms of the secular stagnation.
In Korea, there are some potential factors which can possibly cause the
secular stagnation, although the nation seems to experience a structural
change in its economic system in recent years and it has enough policy
tools to prevent the systemic risk possibility such as fiscal and
macroprudential policies. To minimize the possibility of the secular
stagnation, more aggressive fiscal stimulus is required, and some useful
macroprudential tools such as credit control in a specific sector should be
considered as well.