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In the last 15 years, South Korea´s won has depreciated twice heavily and quickly against the US dollar. As large exchange rate fluctuations could impair economic growth and price stability, studying their root causes could help us understand them better and may help to mitigate their adverse consequences. This book argues that net capital outflows have significantly contributed to two won-depreciation events in the last 15 years. It also examines the role of macroeconomic fundamentals to control for differences between the US and Korea. The results from testing several model specifications support the hypothesis, particularly with regard to net debt securities, net loan and net trade credit flows. Policy options to reduce the adverse effects of capital flow (reversals) include reducing Korea´s reliance on (foreign) loans, enhancing its financial markets, as well as influencing the composition and maturity of cross-border capital flows by regulating capital flows and by strengthening the won´s international role. This book is useful for students and scholars, as well as professionals working on Asia, banking, finance and trade issues.

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Adrian O. Ineichen, MPP and MA Economics (Georgetown University), BA in Economics and BA in International Affairs (University of St. Gallen). Global Associate at Zurich Financial Services.

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