Revisiting the Asian Currency Crisis in South Korea: A Counterfactual Analysis using a Regime-Switching DSGE Model
- Author:
- Junior Maih and Wooheon Rhee
- Series:
- Working Paper
- Number:
- 6/2025
Abstract
The 1997 Asian financial crisis profoundly disrupted East Asian economies, with South
Korea experiencing severe economic distress. This study utilizes a regime-switching dynamic stochastic general-equilibrium (DSGE) model to evaluate the macroeconomic implications of alternative monetary and exchange rate policies. Counterfactual analysis indicates that moderate monetary tightening in early 1998, combined with a strategic currency devaluation in late 1997, could have substantially alleviated the crisis’s intensity and duration. These findings provide valuable insights for crisis management in emerging economies, underscoring the potential of tailored policy interventions to enhance macroeconomic stability.
Keywords: Small open emerging economy; Asian currency crisis; Regime switching; DSGE JEL Classifications: C11; E37; E58; F41
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