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Issues in Korean Exchange Rate Policy

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  • Stanley W. Black

Abstract

Korea faces a number of unique problems that affect its exchange rate policy. Among these are its asymmetric competitive position vis-…-vis Japan, which is both its major supplier of machine tools and a leading competitor in third markets; the current policy of financial liberalization that goes along with democratic liberalization; and the implications of the potential future unification of the Korean peninsula. This paper considers the question of exchange rate policy for Korea in the face of fluctuations in the yen/dollar rate, increasing competition from lower cost Asian countries, and financial liberalization. The paper deals with external vs. internal targets, choice of external comparison basket, and the effects of financial liberalization. The Korean choice of an independent exchange rate policy is analyzed in terms of the trade-off between external shocks and inflation-fighting credibility of the central bank. Financial liberalization brings with it increased capital mobility. The paper also considers the possibility of a regional currency area, Korean unification, and long run equilibrium.

Suggested Citation

  • Stanley W. Black, 1996. "Issues in Korean Exchange Rate Policy," NBER Working Papers 5747, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5747
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    References listed on IDEAS

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    1. Kwack, Sung Y., 1986. "Policy analysis with a macroeconomic model of Korea," Economic Modelling, Elsevier, vol. 3(3), pages 175-196, July.
    2. Ms. Carmen Reinhart & Mr. Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 1995/015, International Monetary Fund.
    3. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 295-333, National Bureau of Economic Research, Inc.
    4. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Do the benefits of fixed exchange rates outweigh their costs? The Franc Zone in Africa," Policy Research Working Paper Series 777, The World Bank.
    5. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    6. Edwards, Sebastian, 1996. "Exchange Rates and the Political Economy of Macroeconomic Discipline," American Economic Review, American Economic Association, vol. 86(2), pages 159-163, May.
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    Cited by:

    1. Esaka, Taro, 2003. "Was it really a dollar peg?: The exchange rate policies of East Asian countries, 1980-1997," Journal of Asian Economics, Elsevier, vol. 13(6), pages 787-809, January.

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    • F3 - International Economics - - International Finance

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