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1. Disorderly adjustments to exchange rate misalignments: The experience of Korea'

Author:
Takuji Kinkyo
Publication Date:
08-2004
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper analyzes Korea's exchange rate dynamics before and during the crisis of 1997-98 by estimating the long-run fundamental exchange rate and the associated error correction model. The analysis suggests that although Korea's exchange rate was substantially overvalued before the crisis, the subsequent exchange rate dynamics could not fully be accounted by the need to correct misalignments. It was found that there was a large deviation from the short-run fundamental value of exchange rates, indicating the presence of “overshooting of the overshooting equilibrium” during the crisis. The findings have important policy implications for crisis management in emerging market economies.
Topic:
International Relations, Development, Economics, and International Political Economy
Political Geography:
Korea

2. Transmission channels of capital flow shocks: why Korean crisis was so severe'

Author:
Takuji Kinkyo
Publication Date:
08-2004
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The Asian crisis highlighted the vulnerability of emerging market economies faced by sudden capital flow reversals. An important question that has critical implications for crisis management is how negative shocks in capital inflows were transmitted to economic activities, transforming financial instability into fully-fledged crises. Using VARs, this paper analyzes the transmission mechanism of capital flow shocks during the Korean crisis of 1997-98. Although it is commonly believed that severe economic contractions were caused by credit crunch, the analysis suggests that the major constraint for production was a steep rise in prices of imported inputs due to sharp exchange rate depreciations.
Topic:
International Relations, Development, Economics, and International Political Economy
Political Geography:
Asia and Korea