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Title:Managing capital flows: The case of the Republic of Korea PDF Logo
Authors:Kim, Soyoung
Yang, Doo Yong
Issue Date:2008
Series/Report no.:ADB Institute Discussion Papers 88
Abstract:The Republic of Korea has recently experienced: (i) large capital inflows, in particular a surge in portfolio inflows, and (ii) an appreciation of asset prices, including stock prices, land prices, and nominal and real exchange rates. We first document the recent trend in capital inflows and asset prices in Korea, and review how a surge in capital inflows can increase asset prices. Then, we empirically investigate the effects of capital inflows on asset prices using a VAR model. The empirical results suggest that capital inflows shocks increased the stock prices but not land prices. The effects on the nominal and real exchange rates are limited, and this is related to the accumulation of foreign exchange reserves. A catch-all solution to the problems that capital inflows present does not seem to exist. Therefore, the most should be made of the available instruments at hand.
JEL:F32
F21
G12
Document Type:Working Paper
Appears in Collections:ADB Institute Discussion Papers, Asian Development Bank Institute

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