How Much Did Excess Debt Contribute to the 1997 Currency Crisis in Korea?
AbstractIt is widely believed that seriously excess debt problems form a major cause of the 1997 Asian financial crisis. This paper investigates empirically the role of the debt problems with respect to both the won/$US rate fluctuations and the won collapse in November 1997. The problems are represented by two institutional variables in nonlinear equilibrium-correction models. The variables are found to exert positive feedback effects on the won rate returns in three forms: disequilibrium in levels, short-run shocks and explosive bubbles. However, the estimated effects are not so singly conspicuous as to serve as the predictor of a likely crash in the won rate in late 1997. Excess debt is hence found to only constitute one of the many factors which brought about the 1997 won collapse.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 407.
Date of creation: Jul 1999
Date of revision:
Disequilibrium; Currency crisis; Excess debt; Institutional variable; Self-fulfilling effect; Intrinsic bubble; Soft-budget constraint;
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-09-27 (All new papers)
- NEP-HIS-1999-09-27 (Business, Economic & Financial History)
- NEP-MON-1999-09-27 (Monetary Economics)
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