Shin gave the figures during a parliamentary audit at the Bank of Korea in Seoul's Jung district after Rep. Lee Jong-wook of the People Power Party raised the possibility of a policy mismatch between fiscal expansion and monetary tightening.
Simply adding those figures to the central bank's August economic outlook would lift next year's growth forecast to 3.4% from 2.9% and inflation to 2.36% from 2.3%. However, the estimates come from the bank's research department using its BOK20 macroeconomic model to gauge the average spillover effects of fiscal spending, and actual effects could differ if the composition of budget items changes during parliamentary deliberation. A Bank of Korea official said the figures were "calculated by assuming the composition of government consumption, investment and transfer payments based on past experience" and are "not directly reflected in the official forecast."
Shin agreed that government fiscal spending could pressure prices by boosting aggregate demand in the short term. But he maintained his existing position that monetary and fiscal policy are not necessarily at odds if government spending raises the potential growth rate over the medium to long term.
"We are verifying with models whether it actually becomes a mismatch," Shin said, adding that "transfer payments have a relatively low fiscal multiplier." On inflationary pressure, he said, "At around 0.06 percentage point, you could see it as not that large."