url
25
Aug
2014

ASIAN CURRENCY CRISIS: Numerical Experiments


Calibrating the Model Using Korea Data

We begin by discussing the debt and threshold rule parameters b0, /0, do, ф, and Ф. The domestic and foreign debt levels of the public sector in our model were calibrated using the consolidated debt levels of the Korean government and central bank. The Korean Ministry of Finance (MOFE) reports that the level of total government and public sector bonds outstanding at the end of December 1996 was equal to approximately 37.4 trillion won.13 According to the International Financial Statistics (IFS) of the International Monetary Fund (IMF), the Bank of Korea held claims on the government equal to 2 trillion won as of the end of December 1996.

To avoid double counting, we subtracted this number from the reported level of total government and public sector bonds. The IFS also reports that the Bank of Korea had net domestic liabilities (excluding those vis-a-vis the government, official entities and base money) of 4.7 trillion won. Based on this evidence, we conclude that consolidated government domestic liabilities equaled roughly 37.4—2+4.7 = 40.1 trillion won, or 10.3 percent of 1996 GDP. Accordingly we set b0 = 0.103.

The Korea Institute for International Economic Policy (KIEP) estimated that the foreign debt of the public sector in June 1997 was equal to 2.0 trillion won.14 According to the IFS, the value of the central bank’s net foreign assets was approximately 28.0 trillion won. This suggests that the overall net foreign assets of the consolidated public sector was equal to roughly 26.0 trillion won or 6.7 percent of 1996 GDP. We set /0 = 0.067 and b0 — /0 = 0.036. According to the Bank of Korea, the value of private sector net foreign debt at the end of 1996 was roughly 13.9 percent of GDP. Accordingly we set d0 = —0.139.

In Section 6 we argue that the value of non-performing loans relative to GDP prior to the crisis was roughly 0.25. Taking this to be an estimate of the governments implicit liabilities to the financial sector we set ф = 0.25. Since there is substantial uncertainty about this number we explore the sensitivity of our results to perturbations in ф. The benchmark value of Ф was chosen to match the increase in consolidated government liabilities that occurred in the period leading up to late October 1997 when the won first lost an unprecedented (by recent standards) fraction of its value. Using data from KIEP and the IFS, we estimate that net liabilities of the consolidated public sector rose to 5.3 percent of GDP as of the end of September 1997. Accordingly we set Ф = 0.053. Later we explore the sensitivity of our results to perturbations in Ф. payday loans by phone

Calibrating the Model Using Korea Data We begin by discussing the debt and threshold rule parameters b0, /0, do, ф, and Ф. The domestic and foreign debt levels of the public sector in our model were calibrated using the consolidated debt levels of the Korean government and central bank. The Korean Ministry of Finance (MOFE) reports that the level of total government and public sector bonds outstanding at the end of December 1996 was equal to approximately 37.4 trillion won.13 According to the International Financial Statistics (IFS) of the International Monetary Fund (IMF), the Bank of Korea held claims on the government equal to 2 trillion won as of the end of December 1996. To avoid double counting, we subtracted

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Kevin J. Brandon

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