Essays in international economics (Korea)

This dissertation consists of three essays on international economics.; The first essay studies exchange rate arrangement in Korea. After the crisis, Korea announced that it would let its currency float freely. Our analysis indicates that Korea still loosely pegs its currency to the US dollar. In addition, we find evidence of an asymmetric exchange rate arrangement among the yen, the won and the dollar in Korea. Korea's authorities appear to intervene in the foreign exchange market to prevent appreciation of the won against the yen when there is sustained short-run depreciation of the yen against the dollar. This action suggests that Korea is attempting to maintain a competitive won/yen exchange rate to help its export.; The second essay investigates the effect of capital inflows on real exchange rates in developing countries in recent years. We develop a simple model of capital inflows to examine the behavior of real exchange rates and investment during the period of capital inflows. Our model predicts that capital inflows will lead to appreciation of real exchange rates and higher investment. This prediction is consistent with one of the stylized facts of capital inflows. Furthermore, we find that the response of real exchanges rates during the period of capital inflows depends on the behavior of macroeconomic variables such as government expenditure and productivity growth.; The third essay examines issues regarding controls on international capital inflows. Our model reveals that imposing capital controls on inflows allows countries to implement a tight monetary policy for domestic policy goals. The empirical evidence displays mixed results regarding the effectiveness of Malaysia's capital controls introduced in 1994. The controls were effective in terms of attracting a higher share of long-term capital inflows and of generating a larger covered interest differentials. However, the capital controls had a minimal effect on the real exchange rate and the current account. Closer analysis reveals that this failure is most likely due to monetary and exchange rate policy that have lowered domestic interest rate and caused the domestic currency to appreciate.