Advanced Search
MyIDEAS: Login to save this article or follow this journal

Behind the scenes of abandoning a fixed exchange rate regime

Contents:

Author Info

  • Kang, Hyunju

Abstract

This paper explores the process of abandoning a fixed exchange rate regime during sudden stops in a small open economy. The Bank of Korea’s exchange rate policy reports during the East Asian crisis suggest that its fixed exchange rate regime was forced to collapse due to the depletion of usable foreign reserves, which resulted from the credit policy of the Korean central bank to support domestic banks in need of foreign currency liquidity. To capture the Korean crisis experience, I build a quantitative small open economy model in which, in response to the country risk premium shock, the foreign-currency credit policy of a central bank under fixed regime leads to the exhaustion of international reserves and consequent exchange rate regime shift. This model does well at replicating the observed contraction in Korean aggregate variables.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0378426613001179
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 8 ()
Pages: 3145-3156

as in new window
Handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:3145-3156

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Exchange rate regime; Sudden stops; Financial frictions; Small open economy;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000. "Balance Sheets and Exchange Rate Policy," NBER Working Papers 7840, National Bureau of Economic Research, Inc.
  2. Michael B. Devereux & Philip Lane, 2001. "Exchange Rates and Monetary Policy in Emerging Market Economies," Trinity Economics Papers 200111, Trinity College Dublin, Department of Economics.
  3. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
  4. Choi, Woon Gyu & Cook, David, 2004. "Liability dollarization and the bank balance sheet channel," Journal of International Economics, Elsevier, vol. 64(2), pages 247-275, December.
  5. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  6. Burcu Aydin & Engin Volkan, 2011. "Incorporating Financial Stability in Inflation Targeting Frameworks," IMF Working Papers 11/224, International Monetary Fund.
  7. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  8. Martin Uribe & Vivian Yue, 2004. "Country spreads and emerging countries: who drives whom?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  9. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2003. "External constraints on monetary policy and the financial accelerator," BIS Working Papers 139, Bank for International Settlements.
  10. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  11. Ueda, Kozo, 2012. "Banking globalization and international business cycles: Cross-border chained credit contracts and financial accelerators," Journal of International Economics, Elsevier, vol. 86(1), pages 1-16.
  12. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599 Elsevier.
  13. Sergio Rebelo & Carlos A. Végh, 2008. "When is it Optimal to Abandon a Fixed Exchange Rate? -super-1," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 929-955.
  14. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  15. Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, September.
  16. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  17. Mathias Hoffmann, 2007. "Fixed versus Flexible Exchange Rates: Evidence from Developing Countries," Economica, London School of Economics and Political Science, vol. 74(295), pages 425-449, 08.
  18. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  19. Woo-sik Moon, 2000. "The Three Causes of the Korean Currency Crisis and Policy Mistakes Reexamined," Working Paper Series no33, Institute of Economic Research, Seoul National University.
  20. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  21. Keisuke Otsu, 2008. "A Neoclassical Analysis of The Korean Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 449-471, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sibbertsen, Philipp & Wegener, Christoph & Basse, Tobias, 2013. "Testing for a Break in the Persistence in Yield Spreads of EMU Government Bonds," Hannover Economic Papers (HEP) dp-517, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:3145-3156. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.