This paper explores the effects of external uncertainty on South Korea’s real economy. By exploiting variations in geopolitical risks posed by Russia and the uncertainty surrounding US monetary policy ― both of which are plausibly exogenous to the Korean economy, the study reveals that such uncertainties negatively impact Korea’s key domestic macroeconomic variables. Notably, this adverse effect is distinctively evident in sectors like exports and manufacturing due to their high sensitivity to external demand dynamics. Using micro-data, the study further indicates that external uncertainty significantly reduces (i) exports to low-income countries and (ii) exports of capital goods. Additionally, the analysis confirms that financial constraints and the irreversibility of investment decisions play pivotal roles in amplifying the effects of external uncertainties.

This study enriches the existing literature by quantifying the impact of external uncertainty using novel instruments ― the geopolitical risk emanating from Russia and the uncertainty surrounding US monetary policy. These findings can offer insights that can guide the formation of resilient policy, aptly designed for a dynamic external landscape, while providing a comprehensive understanding of how external uncertainty influences real economy at both macro and mirco levels.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review

Chapter 3 Measures of External Uncertainty
　Section 1 Geopolitical Risk from Russia and Uncertainty in US Monetary Policy

Chapter 4 The Ripple Effects of External Uncertainty: A Macroeconomic Analysis
　Section 1 Effects of External Uncertainty on Domestic Macroeconomic Variables
　Section 2 Transmission Channels of External Uncertainty: Focus on Global Trade Volume Reduction

Chapter 5 The Ripple Effects of External Uncertainty: A Microeconomic Analysis
　Section 1 Effects of External Uncertainty on Domestic Exports
　Section 2 Effects of External Uncertainty on Firms’ Investment Decisions

Chapter 6 Conclusion and Policy Implications

References
Appendix
ABSTRACT