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Speculative attack and Korean exchange rate regime

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Frame of Image e fundamentals and the speculative attack is difficult to reconcile with a purely fundamentals -b a s e d theory of crisis, and several economist proposed the hypothesis of self-fulfilling speculation (the second
generation). The occurrence of crises and their precise timing involve multiple equilibrium, but the latter can grow only on the fertile ground of deteriorated fundamentals. The third generation model adopts game theoretic approach and the currency crisis is contagious because the interplay of market participants ’belief matters, regardless of the economic fundamentals. Based on the three models, this
paper compares the appropriate exchange regimes and recommends the optimal exchange regime and policy response of Korean economy faced the possibility of speculative attack.
JEL Classification: F33 Key Words: Exchange Rate Regime, Speculative Attack, Korean exchange rate
l
JiHong Kim is a professor at KDI school of public policy and management.
1
Speculative Attack and Korean Exchange Rate Regime
1.Introduction
The informal pegging of Korean Won to the US dollar in the mid 1990s when the US$ appreciated is one of the backgrounds of Korean foreign exchange crisis. Attracted by the liberalization of capital movement, stability stemming from rigid exchange rates, and high domestic interest rates, foreign capital moved into Korea. With the loss of confidence in Korean Won, these funds were reversed, which required significant corrections in macroeconomics policies. speculat


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Title Speculative attack and Korean exchange rate regime
Similar Titles
Material Type Reports
Author(English)

Kim, Ji Hong

Publisher

[Seoul]:KDI school of Public Policy and Management

Date 2004-12
Series Title; No Working papers
Pages 21
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Macroeconomics
Holding KDI school of Public Policy and Management