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Managing capital flows : The case of the Republic of Korea

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  • Managing capital flows
  • Kim, Soyoung; Yang, Doo Yong
  • Asian Development Bank Institute


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Title Managing capital flows
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Sub Title

The case of the Republic of Korea

Material Type Reports
Author(English)

Kim, Soyoung; Yang, Doo Yong

Publisher

Tokyo:Asian Development Bank Institute

Date 2008-02
Series Title; No ADB Institute Discussion Paper / 88
Pages 35
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Original Format pdf
Subject Economy < Financial Policy
Holding Asian Development Bank Institute

Abstract

The Republic of Korea has recently experienced: (i) large capital inflows, in particular a surge in portfolio inflows, and (ii) an appreciation of asset prices, including stock prices, land prices, and nominal and real exchange rates. We first document the recent trend in capital inflows and asset prices in Korea, and review how a surge in capital inflows can increase asset prices. Then, we empirically investigate the effects of capital inflows on asset prices using a VAR model. The empirical results suggest that capital inflows shocks increased the stock prices but not land prices. The effects on the nominal and real exchange rates are limited, and this is related to the accumulation of foreign exchange reserves. A catch-all solution to the problems that capital inflows present does not seem to exist. Therefore, the most should be made of the available instruments at hand.