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East Asian Economic Review Vol. 5, No. 1, 2001. pp. 3-30.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2001.5.1.75

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Effects of Current Forward Market Intervention in the Korean Currency Crisis

Author

Woosik Moon

Graduate Institute for International and Area Studies, Seoul National University

mwoosik@snu.ac.kr
Creative Commons Attribution License

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

This paper investigates the effect of the exchange market interventions of the Bank of Korea on the exchange rate of Korean won vis-a-vis US dollar during the 1997 currency crisis. In particular, this paper tests the effects of spot and forward market interventions, using daily intervention data of the Bank of Korea. During the 1997 period, Korea faced two series of crisis in January-March and September-November. It turns out that the spot market intervention was effective in stabilizing the spot market exchange rate at least during the first crisis period. In contrast, there seemed no effect of the forward market intervention. Forward market intervention was rather destabilizing through forward exchange rate during the second crisis period. This implies that even though the forward and sterilized spot market interventions are equivalent in their effect on exchange rate, these two instruments can widely diverge from each other under the circumstances of exchange rate volatility and speculation.

JEL classification: F31, F33

Keywords

forward exchange, foreign exchange control, currency crisis, Korea

Language

Korean

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