The Real Impact of Financial Shocks: Evidence from the Republic of Korea

Tightening monetary policy excessively as an initial response to the East Asian crisis has been frequently criticized, albeit without empirical support. In this paper, we examine the extent that monetary/financial shocks are magnified in the Korean economy via the credit channel. We find that spreads, which capture credit channel effects, do indeed influence economic activity, and these effects are disproportionately larger for small and medium-sized enterprises. Consequently, policy makers who neglect credit channel effects might be “overkilling the economy ” and altogether overlooking the incommensurate sectoral effects of monetary/financial shocks. ______________________________________________________________________________ * Ilker Domaç and Giovanni Ferri are economist and principal financial economist in the East Asia Pacific Region, respectively. The findings and conclusions of the paper are those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. Summary The debates surrounding the recent East Asian crises have focused, not only o

Real Exchange Rate Behavior and Economic Growth

This paper examines the effect of the real exchange rate misalignment (RERMIS) on the collective economic growth of Egypt, Jordan, Morocco, and Tunisia. The paper constructs three measures of exchange rate misalignment based on purchasing power parity; a black market exchange rate; and a structured model. The empirical investigation confirmed the adverse effect of RERMIS on growth, using all measures of RERMIS, as predicted by endogenous growth models. The results also highlighted the role of other factors; specifically, capital growth and population have the theoretical signs predicted by the Solow growth model and are statistically significant.

What Triggers Inflation in Emerging Market Economies?

Inflation starts, emerging market economies, price level stability, probit analysis,