تعادل و بحران ارز چندگانه: شواهد برای کره

This paper estimates a non-linear model that allows for multiple equilibria using data on Korea during the currency crisis in 1997. Results suggest that Korea may have been vulnerable to self-fulfilling speculation as early as January 1997. An extended phase of multiple equilibria started in October 1997. The fundamentals for Korea remained in this crisis zone until March 1998. Korea briefly entered a multiple equilibria zone again in May and June 1998 before stabilizing in July 1998. Results are supportive of roles for weakness in fundamentals and for self-fulfilling beliefs in explaining currency crises.

The timing and the severity of the recent financial and economic crises in East Asia have intensified debate over the extent to which fundamentals can explain currency crises or whether self-fulfilling speculation is a contributing factor.1 Surprise regarding the onset of crises in East Asia was amplified by the severity of the crisis, particularly in Korea, a country long regarded as a model economy with rapid economic growth and macroeconomic stability. In this paper it is argued that, while there was a mixed picture with regard to the economic fundamentals in Korea, a satisfactory explanation for the crisis at the end of 1997 should include a role for self-fulfilling speculation.2 The objective in this paper is to estimate a non-linear model that allows for multiple equilibria for Korea during the crisis period. This self-fulfilling currency crisis model is based on models due to Obstfeld (1997) and Jeanne (1997). It is an attractive model since it emphasizes a role for fundamentals together with self-fulfilling beliefs. In the model, underlying macroeconomic fundamentals determine the range of possible equilibria. The dependent variable is the market’s expected probability of abandonment of the Korean won/US dollar exchange rate peg, measured by proxy by the forward exchange rate premium of the won/dollar exchange rate from the Hong Kong non-delivered forward (NDF) market. Estimation of the model by a non-linear Maximum Likelihood method provides some evidence of Korea having been in a zone of multiple equilibria and there having been self-fulfilling speculation at times during 1997 and 1998. Results suggest that Korea may have been vulnerable to multiple equilibria and self-fulfilling speculation as early as January 1997 during the Hanbo bankruptcy. We find evidence that fundamentals for Korea entered into a crisis zone of multiple equilibria in October 1997 and remained in this zone until March of 1998. Korea briefly entered a multiple equilibria zone again in May and June 1998, before finally stabilizing in July 1998. It should be noted that our methodology of viewing a poor empirical fit based on fundamentals as evidence of self-fulfilling expectations is limited by the possibility that poor performance may be due to other factors, including measurement error. The outline of the paper is as follows. Section 2 reviews the background to the currency crisis and discusses the issue of the predictability of crises given the fundamentals using a probit model. In Section 3, a model in which both fundamentals and self-fulfilling speculation play a role in currency crisis is presented. Section 4 reports results from bringing this model to data for Korea. Section 5 concludes.

It is argued in this paper that although there was a mixed picture with regard to economic and financial fundamentals in Korea in the period leading up to crisis at the end of 1997, a satisfactory explanation for the currency crisis should include a role for self-fulfilling speculation. It must be emphasized that the finding, that the fundamentals do not provide a good fit for the crisis as evidence of self-fulfilling expectations, is limited by the possibility that poor performance may be due to other factors, including the omission of relevant variables and measurement error. A model was presented in which fundamentals and self-fulfilling beliefs have a role in explaining currency crises and implemented with data on the Korean economy. The dependent variable, the market’s expected probability of abandonment of the won/dollar exchange rate, is measured by proxy and based on the won/dollar forward exchange rate premium from the Hong Kong NDF market. The fundamental is given by the surplus in current account, the real effective exchange rate, and the rate of unemployment, and by the first two variables and foreign reserves. The limited scope of fundamentals, especially financial variables thought to be influential during the crisis, is an additional reason for caution in interpreting results. The model provides evidence of self-fulfilling speculation during 1997 and 1998. Results suggest that Korea may have been vulnerable to multiple equilibria and self-fulfilling speculation as early as January 1997. A phase when multiple equilibria were possible extended from October 1997 to March 1998. Korea entered a multiple equilibria zone again in May and June 1998 during currency crises in other parts of the world. The proxy and predicted devaluation probabilities from the non-linear model jump around the periods identified as those of multiple equilibria. Overall, results from the data for Korea are supportive of roles for weakness in fundamentals and for self-fulfilling beliefs in explaining currency crises.