Investment During the Korean Financial Crisis: A Structural Econometric Analysis

54 Pages Posted: 24 Aug 2007 Last revised: 18 Oct 2007

See all articles by Simon Gilchrist

Simon Gilchrist

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Jae Sim

Board of Governors of the Federal Reserve System

Date Written: August 2007

Abstract

This paper uses firm-level panel data to analyze the role of financial factors in determining investment outcomes during the Korean financial crisis. Our identification strategy exploits the presence of foreign-denominated debt to measure shocks to the financial position of firms following the devaluation that occurred during the crisis period. Structural parameter estimates imply that financial factors may account for 50% to 80% of the overall drop in investment observed during this episode. Our estimates also imply that foreign-denominated debt had relatively little effect on aggregate investment spending. Counterfactual experiments suggest sizeable contractions in investment through this mechanism for economies that are more heavily dependent on foreign-denominated debt however.

Suggested Citation

Gilchrist, Simon and Sim, Jae W., Investment During the Korean Financial Crisis: A Structural Econometric Analysis (August 2007). NBER Working Paper No. w13315. Available at SSRN: https://ssrn.com/abstract=1008809

Simon Gilchrist (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jae W. Sim

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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