Macroeconomic Effects of Capital Account Liberalization: The Case of Korea

16 Pages Posted: 2 Nov 2004

See all articles by Soyoung Kim

Soyoung Kim

affiliation not provided to SSRN

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics

Yunjong Wang

SK Research Institute - Seoul Finance Center

Abstract

The macroeconomic effects of capital account liberalization in Korea are examined. Simple data analysis suggests that capital account liberalization substantially changed the nature and composition of capital flows. Based on the VAR model, the authors find the following stylized facts. First, after capital market liberalization, capital flows become less driven by current account imbalances and therefore become more autonomous. Second, capital account liberalization significantly changes the effects of capital flows on macroeconomic variables. Third, capital account liberalization is highly related to consumption and investment booms, and subsequent appreciation of nominal and real exchange rates, which leads to the current account worsening. Finally, there is strong evidence of sterilized foreign exchange market intervention in response to capital inflows.

Suggested Citation

Kim, Soyoung and Kim, Sunghyun Henry and Wang, Yunjong, Macroeconomic Effects of Capital Account Liberalization: The Case of Korea. Review of Development Economics, Vol. 8, No. 4, pp. 624-639, November 2004. Available at SSRN: https://ssrn.com/abstract=610471

Soyoung Kim (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics ( email )

110-745 Seoul
Korea

Yunjong Wang

SK Research Institute - Seoul Finance Center ( email )

Seoul
Korea

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