TY  - JOUR
AU  - Aizenman,Joshua
AU  - Lee,Yeonho
AU  - Rhee,Yeongseop
TI  - International Reserves Management and Capital Mobility in a Volatile World: Policy Considerations and a Case Study of Korea
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10534
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10534
L1  - http://www.nber.org/papers/w10534.pdf
N1  - Author contact info:
Joshua Aizenman
Department of Economics;  E2
1156 High St.
University of California, Santa Cruz
Santa Cruz, CA  95064
Tel: 831/459-4791
Fax: 831/459-5077
E-Mail: jaizen@ucsc.edu
AB  - This paper characterizes the precautionary demand for international reserves driven by the attempt to reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It validates the main predictions of the precautionary approach by investigating changes in the patterns of international reserves in Korea in the aftermath of the 1997-8 crisis. This crisis provides an interesting case study, especially because of the rapid rise in Korea's financial integration in the aftermath of the East-Asian crisis, where foreigners' shareholding has increased to 40% of total Korean market capitalization. We show that the crisis led to structural change in the hoarding of international reserves, and that the Korean monetary authority gives much greater attention to a broader notion of 'hot money,' inclusive of short-term debt and foreigners' shareholding.
ER  -