International reserves management and capital mobility in a volatile world: Policy considerations and a case study of Korea

Joshua Aizenman, Yeonho Lee, Youngseop Rhee

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40 Scopus citations


This paper characterizes the precautionary demand for international reserves driven by the attempt to reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It validates the main predictions of the precautionary approach by investigating changes in the patterns of international reserves in Korea in the aftermath of the 1997-1998 crisis. This crisis provides an interesting case study, especially because of the rapid rise in Korea's financial integration in the aftermath of the East Asian crisis, where foreigners' shareholding has increased to 40% of total Korean market capitalization. We show that the crisis led to structural change in the hoarding of international reserves, and that the Korean monetary authority gives much greater attention to a broader notion of 'hot money,' inclusive of short-term debt and foreigners' shareholding. J. Japanese Int. Economies 21 (1) (2007) 1-15.

Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalJournal of the Japanese and International Economies
Issue number1
StatePublished - 1 Mar 2007
Externally publishedYes


  • Foreigners' shareholding
  • Precautionary demand for international reserves
  • Short-term capital flows

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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