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A New Macro-Financial System for a Stable and Crisis-resilient Growth in Korea
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- Authors
- Issue Date
- 2010-04
- Citation
- Seoul Journal of Economics, Vol.23 No.2, pp. 145-186
- Keywords
- Financial crises ; BBC ( basket, bands, and crawl) ; Tobin taxes ; Intermediate system ; Capital controls
- Abstract
- 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.
- ISSN
- 1225-0279
- Language
- English
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