Maintaining macro-stability for a crisis-resilient growth in Korea

J. Kim, H. Kim and H.S. Song

Chapter 6 in Economic Catch-up and Technological Leapfrogging, 2016, pp 114-145 from Edward Elgar Publishing

Abstract: In Chapter 6 a structuralist macroeconomics perspective is taken to interpret the two recent financial crises in Korea, and a new policy framework and reform measures are suggested to build a crisis-resilient macro-financial system in Korea. The chapter focuses on the so-called “Frenkel-Neftci” cycle and the two kinds of expected spreads, namely, interest spread and capital gain spreads, which initially motivate foreign investment in emerging economies. To establish a crisis-resilient macro-financial system, a new macro policy framework that can be described as “an intermediate system” is proposed, with full capital mobility but with an explicit option of Tobin taxes, a flexible basket, band, and crawl exchange rate system, and relative independence in monetary policy making with a new balance between interest rates and exchange rate targeting. A justification for the intermediate system proposed in this chapter is made because it is not easy to prevent the “two kinds of spreads” from happening simultaneously in a standard (orthodox) open macroeconomic policy setting.

Keywords: Asian Studies; Development Studies; Economics and Finance; Innovations and Technology (search for similar items in EconPapers)
Date: 2016
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