Spot and foward market intervention during the 1997 Korean currency crisis
This study shows that, among the two crisis periods of 1997, January-March and September-November, the spot market interventions were effective in stabilizing the Korean currency in the first period, whereas there is no evidence that the forward market interventions were effective in either of these two periods. If anything, the forward market interventions resulted in a destabilization of the exchange rate. This result may be due to excessive use of forward market interven-tions from 20th October, when the forward premium tended to show amplifying movement. Although it was clear that the Korean won was no longer defendable by forward market interventions, the Korean monetary authorities intervened in vain to defend the Korean currency. The forward market intervention seemed to be heavily used because the BOK believed its efficacy of a bear squeeze and wanted to camouflage the drain in foreign reserves. However, wasting foreign reserves in this operation proved too costIy for the BOK and the Korean economy. The result of this study suggests that, only when forward premiums are maintained within some margin, forward market interventions may be an effective instrument for stabilizing the foreign exchange market, otherwise it can create unwanted results, precipitating only the collapse of the exchange rate and aggravating the drain of foreign reserves, especially in a crisis period.
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.:
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
- Baillie, Richard T. & P. Osterberg, William, 1997. "Central bank intervention and risk in the forward market," Journal of International Economics, Elsevier, vol. 43(3-4), pages 483-497, November.
- Kathryn M. Dominguez, 1993. "Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?," NBER Working Papers 4532, National Bureau of Economic Research, Inc.
- Rogoff, Kenneth, 1984. "On the effects of sterilized intervention : An analysis of weekly data," Journal of Monetary Economics, Elsevier, vol. 14(2), pages 133-150, September.
- Subir Lall, 1997. "Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze," IMF Working Papers 97/164, International Monetary Fund.
- Graciela L. Kaminsky & Karen K. Lewis, 1996.
"Does foreign exchange intervention signal future monetary policy?,"
96-7, Federal Reserve Bank of Philadelphia.
- Kaminsky, Graciela L. & Lewis, Karen K., 1996. "Does foreign exchange intervention signal future monetary policy?," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 285-312, April.
- Graciela L. Kaminsky & Karen K. Lewis, 1993. "Does foreign exchange intervention signal future monetary policy?," Finance and Economics Discussion Series 93-1, Board of Governors of the Federal Reserve System (U.S.).
- Kaminsky, G.L. & Lewis, K.K., 1992. "Does Foreign Exchange Intervention Signal Future Monetary Policy?," Weiss Center Working Papers 93-3, Wharton School - Weiss Center for International Financial Research.
- Graciela Kaminsky & Karen K. Lewis, 1993. "Does Foreign Exchange Intervention Signal Future Monetary Policy?," NBER Working Papers 4298, National Bureau of Economic Research, Inc.
- Peter M. Garber & Subir Lall, 1996. "Derivative products in exchange rate crises," Proceedings, Federal Reserve Bank of San Francisco, pages 206-231.
- Peter M. Garber & Michael G. Spencer, 1995. "Foreign Exchange Hedging and the Interest Rate Defense," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 490-516, September.
- Tsutomu Watanabe, 1992. "The signaling effect of foreign exchange intervention: the case of Japan," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
- Tsutomu Watanabe, 1992. "The signaling effect of foreign exchange intervention: the case of Japan," Proceedings, Federal Reserve Bank of San Francisco, pages 258-286.
- Catherine Bonser-Neal, 1996. "Does central bank intervention stabilize foreign exchange rates?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 43-57.
- Ramon Moreno, 1997. "Lessons from Thailand," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov7.
- Mark P. Taylor & Lucio Sarno, 2001.
"Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?,"
Journal of Economic Literature,
American Economic Association, vol. 39(3), pages 839-868, September.
- Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers 2690, C.E.P.R. Discussion Papers.
- Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
- Owen F. Humpage, 1991. "Central-bank intervention: recent literature, continuing controversy," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 12-26.
- Francis X. Diebold & Marc Nerlove, 1986.
"The dynamics of exchange rate volatility: a multivariate latent factor ARCH model,"
Special Studies Papers
205, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X & Nerlove, Marc, 1989. "The Dynamics of Exchange Rate Volatility: A Multivariate Latent Factor Arch Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-21, Jan.-Mar..
- Hsieh, David A, 1989. "Modeling Heteroscedasticity in Daily Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 307-17, July.
When requesting a correction, please mention this item's handle: RePEc:psl:bnlaqr:2006:32. 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: (Carlo D'Ippoliti)
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.