•   •

Download the Paper (345 K, PDF file) - May 1, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
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.

SUGGESTED CITATION:
Joshua Aizenman, Yeonho Lee, and Yeongseop Rhee, "International Reserves Management and Capital Mobility in a Volatile World: Policy Considerations and a Case Study of Korea" (May 1, 2004). Department of Economics, UCSC. Paper 569.
http://repositories.cdlib.org/ucscecon/569