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Opening to capital flows and implications from Korea

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Frame of Image conomist, International Economics Team, IMER, BOK.
Institute for Monetary and Economic Research The Bank of Korea
Opening to Capital Flows and Implications from Korea*
Kyungsoo Kima, Byoung-Ki Kimb and Young Kyung Suhc
The views expressed herein are those of the authors and do not necessarily reflect the official views of the Bank of Korea. When reporting or citing it, the authors’ name should always be stated explicitly.
* Paper prepared for international conference on 'Capital Account Liberalisation: Lessons for China’ at the HKMA, Hong Kong SAR on 17-18th November 2008. The views expressed in this paper are those of the authors and do not necessarily represent those of the
Bank of Korea (BOK) or the Bank’s policy. a Deputy Governor, Institute for Monetary and Economic Research (IMER), BOK. b Economist, International Economics Team, IMER, BOK. c Chief Economist, International Economics Team, IMER, BOK.
Contents
I. Introduction…………………………………………………………. 1 II. Capital Account and Financial Market Liberalization…………. 4 III. Stylized Facts on Capital Flows in Korea……………………… 12 IV. Dealing with Capital Flows, and the Consequences……………… 25 V. Conclusion……………………………………………………………39 Reference………………………………………………………………… 42 Appendix………………………………………………………………… 45
Opening to Capital Flows and Implications from Korea
Recent capital flow episodes in Korea and the effectiveness of policy responses to such capital flows are discussed. Capital account liberalization has strengthened the linkage betwe


Full Text
Title Opening to capital flows and implications from Korea
Similar Titles
Material Type Reports
Author(English)

Kim, Kyungsoo; Kim, Byoung-Ki; Suh, Young Kyung

Publisher

[Seoul]:The Bank of Korea

Date 2009-02
Series Title; No Working Paper / no. 363
Pages 51
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding The Bank of Korea; KDI School

Abstract

Recent capital flow episodes in Korea and the effectiveness of policy responses to such capital flows are discussed. Capital account liberalization has strengthened the linkage between capital flows and financial market variables even in the short-term perspective. This paper demonstrates that some capital flows in the form of investment in bonds are driven by derivative-related trades. Furthermore, capital inflows respond to domestic financial variables more sensitively when those variables exhibit high volatility. The effectiveness of various policy measures has been at least partially constrained. Even monetary policy does not seem an exception, as transmission mechanism is significantly influenced by capital flows. As seen recently in the process of international financial unrest propagation, despite the health of Korea’s economic fundamentals, volatility in capital flows has increased sharply.
What have we learned from these experiences? First, once the capital account is liberalized, existence of a sound market structure is an absolute necessity. (The rest omitted)