Monetary–Fiscal Policy Interactions in Korea: A QPM-Based Analysis

This paper develops a quarterly projection model for Korea with an integrated fiscal block, enabling analysis of monetary-fiscal interactions. The model is validated through historical decompositions and forecast evaluation. Scenario analysis comparing dynamics with and without debt-stabilizing fiscal rules reveals a fundamental trade-off: rules generate short-run procyclicality but prevent permanent debt drift. Without rules, temporary nominal GDP movements cause lasting debt-to-GDP changes. For Korea, facing age-related spending pressures, a medium-term fiscal framework could safeguard sustainability.