Monetary Stabilization Policy during Economic Crisis: Case of Korea

Chae-Shick Chung and Se-Jik Kim
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Chae-Shick Chung: Sogang University
Se-Jik Kim: International Monetary Fund

Korean Economic Review, 2004, vol. 20, 157-174

Abstract: The paper evaluates the effectiveness of high interest rate policy in stabilizing the exchange rate during the Korean crisis, based on a nonlinear impulse response function approach. We find that high interest rates induce depreciation for a very short period, followed by a substantial appreciation for an extensive period. In contrast, a low interest rate policy would appreciate the exchange rate only for a very short period but have little impact afterwards. Our empirical findings suggest that the IMF's interest rate policy in Korea contributed to the stabilization of the exchange rate.

Keywords: Crisis; High interest rate policy; Non-linear impulse response function (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2004
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