Currency Crisis in Korea: How Has It Been Aggravated?

Daekeun Park () and Changyong Rhee ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: This paper documents the unfolding process of the Korean crisis in 1997. First, we show that it was hard to predict the Korean crisis at least up till the first half of 1997. Our judgement is based on the pre-crisis behavior of the leading indicators of currency crisis, the financial market data such as forward exchange premium and yield spreads, and the cross- country probit analysis a la frankel and Rose(1996). Second, our chronology study demonstrates that the Korean government unnecessarily aggravated the situation by committing a series of policy mistakes in handling the crisis. Therefore, the government may not be responsible for not preventing the crisis but it was surely responsible for exacerbating the situation after the crisis started.

Date: 1999-03-05

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