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Regional and Global Capital FlowsMacroeconomic Causes and Consequences$
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Takatoshi Ito Ito and Anne O. Krueger

Print publication date: 2001

Print ISBN-13: 9780226386768

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387017.001.0001

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Currency Crisis of Korea

Currency Crisis of Korea

Internal Weakness or External Interdependence?

(p.337) 10 Currency Crisis of Korea
Regional and Global Capital Flows

Dongchul Cho

Kiseok Hong

University of Chicago Press

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

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