Impacts, Transmission and Recovery
Edited by Maurice Obstfeld, Dongchul Cho and Andrew Mason
Chapter 3: Responses of the Korean Economy to the Global Economic Crisis: Another Currency Crisis?
3. Responses of the Korean economy to the global crisis: another currency crisis? Dongchul Cho INTRODUCTION The crisis during 2008–09 was truly global. Enormous impacts spread throughout the world. Reinhart and Rogoff (2009, Box 16.1), for example, identified the recent crisis as one of the two global crises (the other being the Great Depression) from the past two centuries of financial data. It was no surprise that Korea, too, was severely hit by the crisis. Korea was particularly susceptible to global shocks, since its financial and export sectors were opened. Asset prices plummeted, exports collapsed, a drastic economic contraction followed and even the trauma from the financial crisis in 1997 resurfaced. Sentiments in the market were propelled to the extreme, and The Economist (26 February 2009) ranked Korea fourth (after South Africa, Hungary and Poland) on its list of emerging economies most likely to become the next victims of the global crisis. Yet, Korea managed to recover relatively early at a relatively strong pace. In these respects, Korea is an interesting country to study: it is an open economy, subject to global shocks and has the experience of a crisis in its past comparable to the recent one. By examining Korea’s adjustment to the recent global crisis, this chapter seeks some clues to the transmission mechanism of global shocks to emerging economies and the critical factors of host countries for either mitigating or amplifying the effects of external shocks. The chapter is organized as follows. The next section sketches...
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