Exchange Market Pressure and Intervention under the Financial Crisis of Korea

In this paper, EMP (Exchange Market Pressure) and EMI (Exchange Market Intervention) as exchange market indicators are examined in Korea under the financial crisis. In order to measure Korea’s exchange market, Weymark’s model with rational expectations is based. The analysis of exchange market would give the evaluation of Korean government policy. The result shows, over the period 1988-1997, even on October 1997, just before the financial crisis, EMPs are generally stable. Korea’s monetary policy was a contractionary policy before the financial crisis. On December 1997, EMP index are very high for depreciation pressure in Korea. On the other hand, EMIs are different results from EMPs. Under the financial crisis, EMIs are close to zero. It explains that the Korean won was floated on December 1997 without Korean government s control. The evidence provides the lesson, the cause of the Korean crisis includes government s attempts to keep their currencies at artificially high levels. The policy of Korean government did go in a wrong way.