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How Much Did Excess Debt Contribute to the 1997 Currency Crisis in Korea?

Author

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  • Duo Qin

    (Queen Mary and Westfield College, University of London)

Abstract

It 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.

Suggested Citation

  • Duo Qin, 1999. "How Much Did Excess Debt Contribute to the 1997 Currency Crisis in Korea?," Working Papers 407, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:407
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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/1999/items/wp407.pdf
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    More about this item

    Keywords

    Disequilibrium; Currency crisis; Excess debt; Institutional variable; Self-fulfilling effect; Intrinsic bubble; Soft-budget constraint;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; 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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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