The Asian crisis highlighted the vulnerability of emerging market economies faced by sudden capital flow reversals. An important question that has critical implications for crisis management is how negative shocks in capital inflows were transmitted to economic activities, transforming financial...

This paper analyzes Korea’s exchange rate dynamics before and during the crisis of 1997-98 by estimating the long-run fundamental exchange rate and the associated error correction model. The analysis suggests that although Korea’s exchange rate was substantially overvalued before...