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Lessons from the 1997 and the 2008 Crises in Korea

Authors

  • Hangyong LEE,

    Corresponding author
    1. Hanyang University
      Hangyong Lee, College of Economics and Finance, Hanyang University, 17 Haengdang-dong, Seongdong-gu, Seoul 133-791, Korea. Email: hl306@hanyang.ac.kr; Changyong Rhee, Economics and Research Department, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Email: crhee@adb.org
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  • Changyong RHEE

    Corresponding author
    1. Asian Development Bank
      Hangyong Lee, College of Economics and Finance, Hanyang University, 17 Haengdang-dong, Seongdong-gu, Seoul 133-791, Korea. Email: hl306@hanyang.ac.kr; Changyong Rhee, Economics and Research Department, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Email: crhee@adb.org
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  • We are grateful to the editors, Chalongphob Sussangkarn, Yukiko Fukagawa, Lea Sumulong, and seminar participants for valuable comments. The views expressed in this paper are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Governors, or the governments they represent.

Hangyong Lee, College of Economics and Finance, Hanyang University, 17 Haengdang-dong, Seongdong-gu, Seoul 133-791, Korea. Email: hl306@hanyang.ac.kr; Changyong Rhee, Economics and Research Department, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Email: crhee@adb.org

Abstract

The Korean economy was hit harder than anticipated by the global financial crisis. In the first phase, large capital outflows led to a severe liquidity strain in the foreign exchange market, resulting in a rapid depreciation of the exchange rate. Then, in the second phase, the contraction of global demand led to a collapse of exports and a sharp decline in economic activity, raising concerns about a full-fledged financial crisis in Korea. This paper describes how the global financial crisis spilled over into the Korean economy and how the Korean government responded to the financial turmoil. It also provides the background and rationale for the Korean government's decisions to adopt specific policy measures. Based on Korean experiences during the 1997 and the 2008 crises, this paper documents the lessons learned from the past two crises and identifies several important policy issues.

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