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Do Capital Inflows Matter to Asset Prices? The Case of Korea

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  • Soyoung Kim
  • Doo Yong Yang

Abstract

In the present paper, we investigate whether capital flows induce domestic asset price hikes in the case of Korea. This issue is relevant for crisis-hit economies trying to prevent a boom-bust cycle as well as in the formulation of macroeconomic policy objectives in emerging market economies. Korea has recently experienced large capital inflows, in particular a surge in portfolio inflows. Furthermore, asset prices, including stock prices, land prices and nominal and real exchange rates, have also appreciated. The empirical results, obtained using a vector autoregression model, suggest that capital inflow shocks have caused stock prices but not land prices to increase. The effects on the nominal and real exchange rates have been limited, which relates to the accumulation of foreign exchange reserves. Copyright 2009 The Authors. Journal compilation 2009 East Asian Economic Association and Blackwell Publishing Ltd..

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Bibliographic Info

Article provided by East Asian Economic Association in its journal Asian Economic Journal.

Volume (Year): 23 (2009)
Issue (Month): 3 (09)
Pages: 323-348

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Handle: RePEc:bla:asiaec:v:23:y:2009:i:3:p:323-348

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Cited by:
  1. Tillmann, Peter, 2012. "Capital inflows and asset prices: Evidence from emerging Asia," IMFS Working Paper Series 58, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  2. Hassan Fereidouni Gholipour, 2013. "The effect of foreign real estate investments on house prices: evidence from emerging economies," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 17(1), pages 32-43, March.
  3. Shrestha, Prakash Kumar, 2013. "Banking Ssystems, central banks and international reserve accumulation in East Asian economies," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(14), pages 1-29.
  4. Hiroyuki Taguchi, 2012. "Capital Inflows and Asset Prices: The Recent Evidence of Selected East Asian Economies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(8), pages 902-920, December.

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