This paper introduces the redevelopment of the Bank of Korea’s Global Projection Model (BOK-GPM), a framework originally established in 2014, to incorporate major shifts in the international economic environment and the latest academic research. We extended the estimation period through 2023 to cover the post-pandemic period and expanded the multi-country model to include emerging Asia. The redeveloped model shows strong explanatory power for key macroeconomic variables and provides satisfactory forecast accuracy, even with the inclusion of an exceptional period like the COVID-19 pandemic.

  This redevelopment substantially refines the model's three main channels for the cross-country transmission of external shocks: First, the trade channel is re-estimated to better capture the direct and indirect propagation of demand shocks through trade, with updated elasticities reflecting recent structural shifts in global trade; Second, the exchange rate channel now incorporates the U.S. dollar's dominant role as an invoicing currency, allowing the model to capture spillovers from the dollar's fluctuations in addition to traditional real effective exchange rate effects; Third, the financial spillover channel is enhanced by modeling the transmission of shocks from U.S. credit spreads to those of other countries, enabling a more realistic propagation of U.S. financial shocks.

  Our analysis shows that Korea’s GDP is the most responsive among all modeled economies to demand shocks from the United States and China. While the relative impact of Chinese demand shocks has diminished since 2018, the influence of U.S. demand shocks has intensified.

  We also find that the impact of U.S. monetary policy on the Korean economy is now substantially larger, reflecting the model's inclusion of the dollar's key role and financial spillovers. As these policy shocks can contract global trade and tighten financial conditions abroad, the findings highlight the need for heightened vigilance in an externally dependent economy like Korea.

  Ultimately, our findings highlight the need to continue diversifying export markets in response to the evolving global trade environment. They also underscore the importance of closely monitoring the U.S. dollar and financial conditions, given their significant influence on both the domestic and global economies.