Since the global financial crisis (GFC) in 2008, various forms of financial instability have repeatedly emerged when considering the European debt crisis, US interest rate hikes, plunge in commodity prices, and concerns about a hard landing in the Chinese economy. Recently, the international financial market has been unstable due to the COVID-19 pandemic and the intensifying US-China conflict. During this time, emerging countries and Korea have suffered from severe financial instability to a larger extent than advanced economies. Korea experienced de facto financial crisis twice, in 1997 and 2008, due to external shocks. The Korean financial market has recently been very unstable due to external shocks such as the COVID-19 pandemic and the deepening US-China dispute.

Upon this backdrop, this study first attempts to diagnose the recent Korean financial instability through developing the KIEP Financial Stress Index (KIEP FSI). Next, we use the KIEP FSI to analyze the changes in determinants of financial stress after the GFC in Korea and emerging countries. Through this, we suggest policy implications to Korea, which is a highly open economy and vulnerable to external shocks.