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Macroeconomic Impacts of the Korean Financial Crisis: Comparison with the Cross­country Patterns

  • Jong­Wha Lee

    (Harvard University and Korea University)

  • Changyong Rhee


    (Seoul National University and University of Rochester)

This paper analyzes the macroeconomic adjustment process of the Korean financial crisis in a broad international perspective. In particular, the impacts of the crisis on GDP growth, inflation, current account balance, and employment are analyzed using a cross­ country data set, which compiled 150 financial crisis episodes from all developing countries that have received conditional financial assistance from the IMF over the period from 1973 to 1994. The cross country patterns show that GDP growth rates sharply drop with the eruption of a crisis but then recover quickly to the pre­crisis level in two or three years, showing a v­ pattern of adjustment; inflation and current account deficit exhibit an inverse v­pattern, but they do not improve to the level of non­program period; employment growth is most sluggish in the recovery process compared with other macroeconomic variables. We find that the Korean case is in general consistent with these stylized patterns. However, the degree of initial contraction and following recovery has been far greater in Korea than what the cross­country evidence predicts. Cross­country comparison indicates that both the export­oriented structure and the swift adjustment of macroeconomic policies contributed to the speedy adjustment of the Korean economy.

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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 471.

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Length: 40 pages
Date of creation: May 2000
Date of revision:
Handle: RePEc:roc:rocher:471
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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  1. Jong-Wha Lee & Eduardo Borensztein, 2000. "Financial Crisis and Credit Crunch in Korea: Evidence From Firm-Level Data," IMF Working Papers 00/25, International Monetary Fund.
  2. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
  3. Eric Friedman & Simon Johnson & Peter Boone & Alasdair Breach, 1999. "Corporate Governance in the Asian Financial Crisis," Departmental Working Papers 199920, Rutgers University, Department of Economics.
  4. Jong-Wha Lee & Changyong Rhee, 1999. "Social Impacts of the Asian Crisis: Policy Challenges and Lessons," Working Paper Series no2, Institute of Economic Research, Seoul National University.
  5. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  6. Mohsin S. Khan, 1990. "The Macroeconomic Effects of Fund-Supported Adjustment Programs," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 195-231, June.
  7. Tony Killick, 1995. "Can the IMF Help Low-Income Countries? Experiences with its Structural Adjustment Facilities," The World Economy, Wiley Blackwell, vol. 18(4), pages 603-616, 07.
  8. Corbo, Vittorio & Fischer, Stanley, 1995. "Structural adjustment, stabilization and policy reform: Domestic and international finance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 44, pages 2845-2924 Elsevier.
  9. International Monetary Fund, 1998. "Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
  10. Louis Dicks-Mireaux & Miguel A. Savastano & Adam Bennett & María Vicenta Carkovic S. & Mauro Mecagni & James John & Susan Schadler, 1995. "IMF Conditionality: Experience Under Stand-by and Extended Arrangements, Part I: Key Issues and Findings," IMF Occasional Papers 128, International Monetary Fund.
  11. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  12. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
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