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

UCSC Dept. of Economics Working Paper 352

Posted: 5 May 1998

See all articles by William F. Maloney

William F. Maloney

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

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)

Multiple version iconThere are 2 versions of this paper

Date Written: April 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 Y=E8ches (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.

JEL Classification: F41, F36

Suggested Citation

Maloney, William F. and Chinn, Menzie David, Financial and Capital Account Liberalization in the Pacific Basin: Korea and Taiwan During the 1980's (April 1996). UCSC Dept. of Economics Working Paper 352. Available at SSRN: https://ssrn.com/abstract=4104

William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
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202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
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Washington, DC 20433
United States

Menzie David Chinn (Contact Author)

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

1180 Observatory Drive
Madison, WI 53706-1393
United States
608-262-7397 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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