Financial and Capital Account Liberalization in the Pacific Basin: Korea and Taiwan During the 1980's

32 Pages Posted: 16 Jul 2000 Last revised: 29 Mar 2008

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1996

Abstract

This paper presents an alternative method of testing for financial capital mobility in the absence of forward exchange markets. A model of domestic interest rate determination during liberalization is applied to Korean and Taiwanese data. A variety of diagnostic and recursive tests are used to isolate structural breaks in the data. It is shown that Korean interest rates behave as if determined domestically until late 1988 or early 1989, while Taiwanese rates exhibit this behavior until early 1989. Thereafter, these economies' interest rates appear tightly linked to the EuroYen rate. These results contrast with those obtained by Reisen and Yches (1993) which indicated a single opening and closing for Korea, and no structural break for Taiwan. They also differ from those results of Jwa (1994) indicating two temporary openings for Korea. Greater integration of these domestic markets with world financial markets suggests that it will be more difficult for these countries to stabilize their economies in the face of capital inflows and outflows.

Suggested Citation

Chinn, Menzie David and Maloney, William F., Financial and Capital Account Liberalization in the Pacific Basin: Korea and Taiwan During the 1980's (November 1996). NBER Working Paper No. w5814. Available at SSRN: https://ssrn.com/abstract=225602

Menzie David Chinn (Contact Author)

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

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William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

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IZA Institute of Labor Economics

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World Bank - Development Research Group (DECRG)

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