Currency Crisis in Korea: How Was It Aggravated?

Daekeun Park and Changyong Rhee

Asian Development Review (ADR), 1998, vol. 16, issue 01, 149-181

Abstract: This paper documents 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 judgment is based on the precrisis behavior of the leading indicators of currency crisis, financial market data such as forward exchange premiums and yield spreads, and cross-country probit analysis a la Frankel and Rose (1996). Second, our chronological study demonstrates that the Korean government unnecessarily aggravated the situation by committing a series of policy mistakes in handling the crisis. 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: 1998
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DOI: 10.1142/S0116110598000050

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