Financial market integration, exchange rate policy, and the dynamics of business and employment in Korea

Matteo Cacciatore, Fabio Ghironi and Yurim Lee

Journal of the Japanese and International Economies, 2016, vol. 42, issue C, 79-99

Abstract: We study the consequences of different degrees of international financial market integration and exchange rate policies in a calibrated, medium-scale model of the Korean economy. The model features endogenous producer entry into domestic and export markets and search-and-matching frictions in labor markets. This allows us to highlight the consequences of financial integration and the exchange rate regime for the dynamics of business creation and unemployment. We show that, under flexible exchange rates, access to international financial markets increases the volatility of both business creation and the number of exporting plants, but the effects on employment volatility are more modest. Pegging the exchange rate can have unfavorable consequences for the effects of terms of trade appreciation, but more financial integration is beneficial under a peg if the economy is subject to both productivity and terms of trade shocks. The combination of a floating exchange rate and internationally complete markets would be the best scenario for Korea among those we focus on.

Keywords: Business creation; Exchange rate policy; International financial integration; Monetary policy; Risk sharing; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E52 F16 F32 F41 F44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0889158316300296
Full text for ScienceDirect subscribers only

Related works:
Chapter: Financial Market Integration, Exchange Rate Policy, and the Dynamics of Business and Employment in Korea (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:42:y:2016:i:c:p:79-99

DOI: 10.1016/j.jjie.2016.09.002

Access Statistics for this article

Journal of the Japanese and International Economies is currently edited by Takeo Hoshi

More articles in Journal of the Japanese and International Economies from Elsevier
Bibliographic data for series maintained by Catherine Liu ().