There are claims that US monetary policies generate global spillovers and destabilize small open economies. Accordingly, the effects of identified US monetary shocks on Korea’s gross capital flows were analyzed using the local projection method. Consistent with previous results on other small open economies, we confirm that US rate hikes are dynamically correlated with foreign outflows and resident inflows. That is, not only is there a correlation with the withdrawal of foreigners, but also with those of domestic (Korean) investors; primarily driven by portfolio flows. However, the marginal response to the shocks has been subdued in the sample periods following the Global Financial Crisis. A possible reason behind the change may be the institutional shift in regards to financial friction. If the degree of pledgeability on the value of net worth increases, the marginal response of investors will drop on a US monetary shock which is in line with our findings.

Preface
Executive Summary

Chapter 1 Introduction
　Section 1 Overview
　Section 2 External Shocks and Determinants of Capital Flows

Chapter 2 Impact of US Interest Rate Shocks on Korea’s Capital Flows: Empirical Analysis
　Section 1 US Interest Rate Shocks
　Section 2 Effects of US Interest Rate Shocks on Capital Flows
　Section 3 Discussion and Policy Implications

Chapter 3 Conclusion

References
Appendix
ABSTRACT