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A New Macro-Financial System for a Stable and Crisis-resilient Growth in Korea

Keun Lee, Ginil Kim, Hong Kee Kim, Hong-Sun Song

Paper  498kb pdf

A structuralist macroeconomics perspective is taken to interpret the two recent financial crises in Korea, and new policy framework and reform measures are suggested to build a crisis-resilient macrofinancial system. This paper focuses on the “Frenkel-Neftci” cycle (Taylor 1998) and the two kinds of expected spreads, interest spread and capital gain spreads, which initially motivate foreign investment in emerging economies. To establish a crisis-resilient macro-financial system, a new macro policy framework that can be described as “an intermediate system” is proposed, with full capital mobility but with an explicit option of Tobin taxes, flexible basket, band, and crawl (BBC) exchange rate system, and relative independence in monetary policy striking a new balance between interest rates and exchange rate targeting. An intermediate system is proposed because it is not easy to prevent the “two kinds of spreads” from happening simultaneously in a standard open macroeconomic policy setting.

About the Authors

Keun Lee
Department of Economics
Seoul National University

Dr. Keun Lee is the director of the Center for Economic Catch-up, and a professor of economics at the Seoul National University, He holds a Ph.D. degree from the University of California, Berkeley. He was a consultant at the World Bank, lecturer at the University of Aberdeen, Scotland, and a research fellow at the East West Center, Hawaii. He specializes in economics of catch-up addressing such themes as firm growth, industrial policy, and innovation with focus on Korea and China. You can download all of his papers from his web home (www.keunlee.com)

Ginil Kim
Associate Professor
School of Economics
Kookmin University

Hong Kee Kim
Department of Economics
Hannam University

Hong-Sun Song
Research Fellow
Korea Capital Market Institute

Publication Information

Type Network Paper
Program Financial Markets Reform
Posted 01/01/10
Download 498kb pdf
# Pages 42