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Transmission of the global financial crisis to Korea

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  • Kim, Bong-Han
  • Kim, Seewon

Abstract

We argue that Korea's recent financial distresses reflect contagion of the crisis, beyond normal interdependence between the Korean financial market and other regional financial markets. The tests based on the correlation coefficients estimated from the DCC-GARCH and STC-GARCH models lend support to our argument. The contagion occurs mainly during Leman's bankruptcy and the financial market instability in February 2009. The estimation results suggest that exogenous shocks are transmitted to the domestic financial market and they are further facilitated by the structural weakness of domestic financial system. The nature of contagion of the crisis implies that macroeconomic policies that can stabilize the entire financial market may be preferable to microeconomic policies aimed at addressing selected financial institutions’ difficulties. The Korean government has implemented strong macroeconomic policies to address the financial distresses, and the present results suggest that they have thus far been successful.

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  • Kim, Bong-Han & Kim, Seewon, 2013. "Transmission of the global financial crisis to Korea," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 339-353.
    • Handle: RePEc:eee:jpolmo:v:35:y:2013:i:2:p:339-353
    DOI: 10.1016/j.jpolmod.2012.01.005
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    Cited by:

    1. Del Brio, Esther B. & Mora-Valencia, Andrés & Perote, Javier, 2017. "The kidnapping of Europe: High-order moments' transmission between developed and emerging markets," Emerging Markets Review, Elsevier, vol. 31(C), pages 96-115.
    2. Chunxiu, Ma & Masih, Mansur, 2014. "Contagion Effects of US Subprime Crisis on ASEAN-5 Stock Markets: Evidence from MGARCH-DCC Application," MPRA Paper 57004, University Library of Munich, Germany.
    3. Akhtaruzzaman, Md & Shamsuddin, Abul & Easton, Steve, 2014. "Dynamic correlation analysis of spill-over effects of interest rate risk and return on Australian and US financial firms," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 378-396.
    4. Akhtaruzzaman, Md & Shamsuddin, Abul, 2016. "International contagion through financial versus non-financial firms," Economic Modelling, Elsevier, vol. 59(C), pages 143-163.
    5. Wu, Chiu-Hui & Ding, Cherng G. & Jane, Ten-Der & Lin, Hang-Rung & Wu, Cheng-Ying, 2015. "Lessons from the global financial crisis for the semiconductor industry," Technological Forecasting and Social Change, Elsevier, vol. 99(C), pages 47-53.

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    More about this item

    Keywords

    Global financial crisis; Contagion; Interdependence; DCC-GARCH; STC-GARCH;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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