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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..

Suggested Citation

  • Soyoung Kim & Doo Yong Yang, 2009. "Do Capital Inflows Matter to Asset Prices? The Case of Korea ," Asian Economic Journal, East Asian Economic Association, vol. 23(3), pages 323-348, September.
  • Handle: RePEc:bla:asiaec:v:23:y:2009:i:3:p:323-348
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    Cited by:

    1. Hassan Fereidouni Gholipour & Usama Al-mulali & Abdul Hakim Mohammed, 2014. "Foreign investments in real estate, economic growth and property prices: evidence from OECD countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(1), pages 33-45, March.
    2. Nasha Ananchotikul & Longmei Zhang, 2014. "Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets," IMF Working Papers 14/156, International Monetary Fund.
    3. Tillmann, Peter, 2013. "Capital inflows and asset prices: Evidence from emerging Asia," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 717-729.
    4. repec:bla:rdevec:v:21:y:2017:i:4:p:e131-e146 is not listed on IDEAS
    5. Hiroyuki Taguchi & Pravakar Sahoo & Geethanjali Nataraj, 2015. "Capital flows and asset prices: Empirical evidence from emerging and developing economies," International Economics, CEPII research center, issue 141, pages 1-14.
    6. Hwee Kwan Chow & Taojun Xie, 2016. "Are House Prices Driven by Capital Flows? Evidence from Singapore," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, February.
    7. Sean Joss Gossel & Nicholas Biekpe, 2012. "The effects of capital inflows on South Africa's economy," Applied Financial Economics, Taylor & Francis Journals, vol. 22(11), pages 923-938, June.
    8. Jung Wan Lee, 2015. "Dynamic Relationships between Exchange Rates and Foreign Direct Investment: Empirical Evidence from Korea," Asian Economic Journal, East Asian Economic Association, vol. 29(1), pages 73-90, March.
    9. 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.
    10. Taguchi, Hiroyuki & Tian, Lina, 2017. "Capital flows, money supply and property prices: The case of China," MPRA Paper 80730, University Library of Munich, Germany.
    11. 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.
    12. 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 (IfW), vol. 7, pages 1-29.
    13. repec:eco:journ1:2017-02-60 is not listed on IDEAS
    14. Nannan Yuan & Shigeyuki Hamori & Wang Chen, 2014. "House Prices and Stock Prices: Evidence from a Dynamic Heterogeneous Panel in China," Discussion Papers 1428, Graduate School of Economics, Kobe University.
    15. repec:eee:riibaf:v:42:y:2017:i:c:p:454-467 is not listed on IDEAS
    16. repec:eee:reveco:v:50:y:2017:i:c:p:8-22 is not listed on IDEAS
    17. Renu Kohli, 2015. "Capital Flows and Exchange Rate Volatility in India: How Crucial Are Reserves?," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 577-591, August.
    18. Bilge Bakin & Gozde Gurgun, 2014. "Portfolio Investments and Asset Prices Relationship in Turkey," Proceedings of International Academic Conferences 0201138, International Institute of Social and Economic Sciences.

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