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Investment during the Korean Financial Crisis: A Structural Econometric Analysis

  • Simon Gilchrist
  • Jae W. Sim

This paper uses firm-level panel data to analyze the role of financial factors in determining investment outcomes during the Korean financial crisis. Our identification strategy exploits the presence of foreign-denominated debt to measure shocks to the financial position of firms following the devaluation that occurred during the crisis period. Structural parameter estimates imply that financial factors may account for 50% to 80% of the overall drop in investment observed during this episode. Our estimates also imply that foreign-denominated debt had relatively little effect on aggregate investment spending. Counterfactual experiments suggest sizeable contractions in investment through this mechanism for economies that are more heavily dependent on foreign-denominated debt however.

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File URL: http://www.nber.org/papers/w13315.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13315.

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Date of creation: Aug 2007
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Handle: RePEc:nbr:nberwo:13315
Note: EFG IFM ITI ME
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  1. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
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  17. repec:rus:hseeco:124089 is not listed on IDEAS
  18. Olivier J. Blanchard & Florencio Lopez-de-Silane, 1993. "What do Firms do with Cash Windfalls?," NBER Working Papers 4258, National Bureau of Economic Research, Inc.
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