International Reserves Management and Capital Mobility in a Volatile World: Policy Considerations and a Case Study of Korea / Joshua Aizenman, Yeonho Lee, Yeongseop Rhee.

Format:

Book

Author/Creator:

Aizenman, Joshua.

Contributor:

National Bureau of Economic Research.

Lee, Yeonho.

Rhee, Yeongseop.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10534.

NBER working paper series no. w10534

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

International Reserves Management and Capital Mobility in a Volatile World

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

This paper characterizes the precautionary demand for international reserves driven by the attempt to reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It validates the main predictions of the precautionary approach by investigating changes in the patterns of international reserves in Korea in the aftermath of the 1997-8 crisis. This crisis provides an interesting case study, especially because of the rapid rise in Korea's financial integration in the aftermath of the East-Asian crisis, where foreigners' shareholding has increased to 40% of total Korean market capitalization. We show that the crisis led to structural change in the hoarding of international reserves, and that the Korean monetary authority gives much greater attention to a broader notion of 'hot money,' inclusive of short-term debt and foreigners' shareholding.

Notes:

Print version record

June 2004.