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

Takuji Kinkyo ()
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Takuji Kinkyo: Department of Economics, SOAS University of London, UK

No 139, Working Papers from Department of Economics, SOAS University of London, UK

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.

Keywords: Capital flow shocks; Current account adjustments; VAR; Crisis; Korea (search for similar items in EconPapers)
JEL-codes: C22 C32 F31 F32 F41 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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