Capital Inflows and Policy Responses: Lessons from Korea’s Experience
Kyuil Chung and
Seungwon Kim
Chapter 5 in Volatile Capital Flows in Korea, 2014, pp 119-141 from Palgrave Macmillan
Abstract:
Abstract After the late 1990s Asian financial crisis, the main policy framework that Korea adopted combined a free-floating exchange rate system and inflation targeting, together with a widening of financial liberalization. The theoretical background behind this policy scheme was the famous so-called trilemma,1 which dictates that it is impossible to accomplish exchange rate stability, monetary policy independence, and free capital mobility simultaneously. Given the condition that financial markets in individual countries had been rapidly integrated into the international financial markets since the 1980s,2 it seemed that the free-floating exchange rate system and inflation targeting was the best option Korea could choose. Since then, Korean policymakers have maintained this policy framework and considered this their starting point for policymaking. Under the trilemma framework, of course, this has implied an acceptance of high capital mobility.
Keywords: Foreign Direct Investment; Capital Inflow; Foreign Exchange Market; Inflation Target; Asian Financial Crisis (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-36876-8_5
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DOI: 10.1057/9781137368768_5
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