Chapter

Currency Crisis of Korea

Dongchul Cho and Kiseok Hong

in Regional and Global Capital Flows

Published by University of Chicago Press

Published in print July 2001 | ISBN: 9780226386768
Published online February 2013 | e-ISBN: 9780226387017 | DOI: http://dx.doi.org/10.7208/chicago/9780226387017.003.0011
Currency Crisis of Korea

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This chapter examines the currency crisis of Korea. In particular, it attempts to provide some clues to the question of whether Korea was a poor victim of or a major contributor to the crisis in the global capital market. The chapter is organized as follows. Section 10.2 evaluates the position of Korea's fundamentals, which are usually considered important in explaining currency crises in developing countries. It also examines the effect of neighbor countries (or contagion effect) using an index of geographical proximity as well as the trade linkage index developed by Glick and Rose (1998). Section 10.3 takes a further look at the contagion issue, using daily-frequency data of the exchange rates and sovereign spreads on the U.S. dollar-denominated debts for selected countries. Section 10.4 notes some additional weaknesses in Korea's financial market structure, while Section 10.5 offers some concluding remarks. The results suggest that the crises in other countries weakened the Korean economy, but they alone could not have caused the crisis. Instead, Korean economic policies, especially in the financial sector, were weaker than was generally perceived. Two commentaries are included at the end of the chapter.

Keywords: Asian financial crises; currency crisis; economic fundamentals; contagion effect; financial market; economic policy

Chapter.  15370 words.  Illustrated.

Subjects: International Economics

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