ABSTRACT This paper reexamines the long run effects of the 1997 Asian crisis on the Korean economy. Using unobserved components models subject to Markov regime-switching, we address two questions:1) whether the output losses of Koreaduring 1997-1998 were permanent or transitory;2) when the trend growth rate decreased. Estimation results suggest that the trend growth rate of the Korean economy has already declined around 1992-1993 prior to the 1997 crisis, and given the transition of the Korean economy into the low-growth regime in the early 90s, the effects of the crisis are mainly transitory.
Cite this paper
J. Kim and G. Lim, "Legacy of the Asian Currency Crisis: The Case of Korea," Modern Economy, Vol. 3 No. 8, 2012, pp. 939-942. doi: 10.4236/me.2012.38118.
 J. D. Hamilton, “A New Approach to the Economic Analysis Nonstationary Time Series and the Business Cycle,” Econometrica, Vol. 57, No. 2, 1989, pp. 357-384.
 M. Friedman, “Monetary Studies of the National Bureau,” National Bureau of Economic Research, New York, 1964.
 M. Friedman, “The Plucking Model of Business Fluctuations Revisited,” Economic Inquiry, Vol. 31, No. 2, 1993, pp. 171-177. doi:10.1111/j.1465-7295.1993.tb00874.x
 V. Cerra and S. C. Saxena, “Did Output Recover from the Asian Crisis,” IMF Staff Paper, Vol. 52, No. 1, 2005, pp. 1-23.
 C. U. Huh and K. Nam, “A Preview of Tale of Korea’s Two Crises: Distinct Aftermaths of 1997 and 2008 Crises,” The Journal of the Korean Economy, Vol. 11, No. 1, 2010, pp. 1-29.
 C.-J. Kim and C. Neslon, “Friedman's Plucking Model of Business Fluctuations: Tests and Estimates of Permanent and Transitory Components," Journal of Money, Credit and Banking, Vol. 31, No. 3. 1999, pp. 317-334.
 J. C. Morley, C. R. Nelson and E. Zivot “Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?” Review of Economics and Statistics, Vol. 85, No. 2, 2003, pp. 235-243.
 R. J. Barro, “Economic Growth in East Asia before and after the Financial Crisis,” In: D. T. Coe and S.-J. Kim, eds., Korean Crisis and Recovery, IMF, Washington DC, 2002, pp. 333-352.
 R. J. Barro and J.-W. Lee, “Growth and Investment in East Asia before and after the Financial Crisis,” Seoul Journal of economics, Vol. 16, No. 2, 2003, pp. 84-118.
 C.-J. Kim, “Dynamic Linear Models with Markov- switching,” Journal of Econometrics, Vol. 60, No. 1-2, 1994, pp. 1-22. doi:10.1016/0304-4076(94)90036-1