How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices

The authors explore how Koreas financial structure affects the volatility of asset prices. Documented empirical evidence of the relationship between financial structure and financial crisis, sheds light on the relationship between asset price volat...

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Main Authors:	Hong G. Min, Park, Jong-goo
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	ALLOCATION OF FUNDS ASSET MARKETS ASSETS AUTONOMY AUTOREGRESSION BANK ASSETS BANK OF KOREA BANKING SECTOR BONDS CAPITAL FLOWS CAPITAL INFLOWS COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMPETITIVENESS COUNTRY COMPARISONS COUNTRY DATA CREDIT POLICIES CREDIT RATIONING CREDIT UNIONS CURRENCY CRISES DEBT DEPOSITS DEVELOPMENT BANK DOMESTIC CREDIT DOMESTIC FINANCIAL INSTITUTIONS DYNAMIC ANALYSIS ECONOMIC THEORY EXCHANGE RATE EXCHANGE RATES FINANCE COMPANIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL INTERMEDIARIES FINANCIAL LEVERAGE FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL REFORMS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL STOCK FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATE SYSTEM FOREIGN EXCHANGE GDP GROWTH RATE HIGH REAL INTEREST RATES HOUSING HOUSING MARKET INDUSTRIALIZATION INEFFICIENCY INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL FINANCIAL STATISTICS LIQUIDITY LOW INTEREST MACROECONOMIC POLICY MARKET CAPITALIZATION MARKET INTEREST RATES MAXIMUM LIKELIHOOD ESTIMATION MERCHANT BANKING MONETARY AUTHORITY MONETARY POLICIES MONETARY POLICY MONEY MARKET NOMINAL EXCHANGE RATE NONBANKS PER CAPITA INCOME PRICE INCREASES PRICE INDEX PRIVATE SECTOR SAVINGS SAVINGS INSTITUTIONS STATISTICAL ANALYSIS STOCK MARKET STOCK MARKETS STOCK PRICE VOLATILITY STOCK PRICES STOCKS TIME SERIES TURNOVER
Online Access:	http://documents.worldbank.org/curated/en/2000/04/437747/republic-koreas-financial-structure-affects-volatility-four-asset-prices http://hdl.handle.net/10986/22192

id	okr-10986-22192
recordtype	oai_dc
spelling	okr-10986-221922021-04-23T14:04:06Z How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices Hong G. Min Park, Jong-goo ALLOCATION OF FUNDS ASSET MARKETS ASSETS AUTONOMY AUTOREGRESSION BANK ASSETS BANK OF KOREA BANKING SECTOR BONDS CAPITAL FLOWS CAPITAL INFLOWS COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMPETITIVENESS COUNTRY COMPARISONS COUNTRY DATA CREDIT POLICIES CREDIT RATIONING CREDIT UNIONS CURRENCY CRISES DEBT DEPOSITS DEVELOPMENT BANK DOMESTIC CREDIT DOMESTIC FINANCIAL INSTITUTIONS DYNAMIC ANALYSIS ECONOMIC THEORY EXCHANGE RATE EXCHANGE RATES FINANCE COMPANIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL INTERMEDIARIES FINANCIAL LEVERAGE FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL REFORMS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL STOCK FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATE SYSTEM FOREIGN EXCHANGE GDP GROWTH RATE HIGH REAL INTEREST RATES HOUSING HOUSING MARKET INDUSTRIALIZATION INEFFICIENCY INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL FINANCIAL STATISTICS LIQUIDITY LOW INTEREST MACROECONOMIC POLICY MARKET CAPITALIZATION MARKET INTEREST RATES MAXIMUM LIKELIHOOD ESTIMATION MERCHANT BANKING MONETARY AUTHORITY MONETARY POLICIES MONETARY POLICY MONEY MARKET NOMINAL EXCHANGE RATE NONBANKS PER CAPITA INCOME PRICE INCREASES PRICE INDEX PRIVATE SECTOR SAVINGS SAVINGS INSTITUTIONS STATISTICAL ANALYSIS STOCK MARKET STOCK MARKETS STOCK PRICE VOLATILITY STOCK PRICES STOCKS TIME SERIES TURNOVER The authors explore how Koreas financial structure affects the volatility of asset prices. Documented empirical evidence of the relationship between financial structure and financial crisis, sheds light on the relationship between asset price volatility - extreme variations in price - and financial structure. And the volatility of financial and non-financial asset prices provides an indirect link between an economys financial structure and the likelihood of financial crisis. Using time-series data on a se of indicators measuring financial structure, the authors examine how Koreas financial structure affects the volatility of the real effective exchange rate, the money market rate, government bond yields, and stock prices. They find: 1) There is a stable long-term relationship between financial structure and volatility in the real effective exchange rate, the money market rate, stock prices, and the yield on government housing bonds. 2) Financial structure affects asset price variables asymmetrically. Some variables volatility increases, and others diminish, suggesting that monetary policies should target different asset markets to achieve different goals. If the goal of the monetary authority is to stabilize the money market rate, for example, intervening in the banking sector is more efficient than intervening in other financial sub-sectors. 3) The higher volatility of stock prices reflects the thin stock market in Korea. 4) The stability of the yield on government housing bonds reflects the Korean governments policy of stabilizing the nations housing supply by isolating the housing market from the impact of Koreas financial structure. 5) Restrictions on foreigners ownership of domestic stock in Korea during the period analyzed, and the fact that most capital flows through commercial banks, affect the exchange rate, which is determined (at least in the short run) by capital flows in the foreign exchange market. 2015-07-17T14:26:43Z 2015-07-17T14:26:43Z 2000-04 Working Paper http://documents.worldbank.org/curated/en/2000/04/437747/republic-koreas-financial-structure-affects-volatility-four-asset-prices http://hdl.handle.net/10986/22192 English en_US Policy Research Working Paper;No. 2327 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific East Asia Korea, Republic of
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ALLOCATION OF FUNDS ASSET MARKETS ASSETS AUTONOMY AUTOREGRESSION BANK ASSETS BANK OF KOREA BANKING SECTOR BONDS CAPITAL FLOWS CAPITAL INFLOWS COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMPETITIVENESS COUNTRY COMPARISONS COUNTRY DATA CREDIT POLICIES CREDIT RATIONING CREDIT UNIONS CURRENCY CRISES DEBT DEPOSITS DEVELOPMENT BANK DOMESTIC CREDIT DOMESTIC FINANCIAL INSTITUTIONS DYNAMIC ANALYSIS ECONOMIC THEORY EXCHANGE RATE EXCHANGE RATES FINANCE COMPANIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL INTERMEDIARIES FINANCIAL LEVERAGE FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL REFORMS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL STOCK FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATE SYSTEM FOREIGN EXCHANGE GDP GROWTH RATE HIGH REAL INTEREST RATES HOUSING HOUSING MARKET INDUSTRIALIZATION INEFFICIENCY INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL FINANCIAL STATISTICS LIQUIDITY LOW INTEREST MACROECONOMIC POLICY MARKET CAPITALIZATION MARKET INTEREST RATES MAXIMUM LIKELIHOOD ESTIMATION MERCHANT BANKING MONETARY AUTHORITY MONETARY POLICIES MONETARY POLICY MONEY MARKET NOMINAL EXCHANGE RATE NONBANKS PER CAPITA INCOME PRICE INCREASES PRICE INDEX PRIVATE SECTOR SAVINGS SAVINGS INSTITUTIONS STATISTICAL ANALYSIS STOCK MARKET STOCK MARKETS STOCK PRICE VOLATILITY STOCK PRICES STOCKS TIME SERIES TURNOVER
spellingShingle	ALLOCATION OF FUNDS ASSET MARKETS ASSETS AUTONOMY AUTOREGRESSION BANK ASSETS BANK OF KOREA BANKING SECTOR BONDS CAPITAL FLOWS CAPITAL INFLOWS COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL PAPER COMPETITIVENESS COUNTRY COMPARISONS COUNTRY DATA CREDIT POLICIES CREDIT RATIONING CREDIT UNIONS CURRENCY CRISES DEBT DEPOSITS DEVELOPMENT BANK DOMESTIC CREDIT DOMESTIC FINANCIAL INSTITUTIONS DYNAMIC ANALYSIS ECONOMIC THEORY EXCHANGE RATE EXCHANGE RATES FINANCE COMPANIES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL INTERMEDIARIES FINANCIAL LEVERAGE FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL REFORMS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL STOCK FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATE SYSTEM FOREIGN EXCHANGE GDP GROWTH RATE HIGH REAL INTEREST RATES HOUSING HOUSING MARKET INDUSTRIALIZATION INEFFICIENCY INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL FINANCIAL STATISTICS LIQUIDITY LOW INTEREST MACROECONOMIC POLICY MARKET CAPITALIZATION MARKET INTEREST RATES MAXIMUM LIKELIHOOD ESTIMATION MERCHANT BANKING MONETARY AUTHORITY MONETARY POLICIES MONETARY POLICY MONEY MARKET NOMINAL EXCHANGE RATE NONBANKS PER CAPITA INCOME PRICE INCREASES PRICE INDEX PRIVATE SECTOR SAVINGS SAVINGS INSTITUTIONS STATISTICAL ANALYSIS STOCK MARKET STOCK MARKETS STOCK PRICE VOLATILITY STOCK PRICES STOCKS TIME SERIES TURNOVER Hong G. Min Park, Jong-goo How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
geographic_facet	East Asia and Pacific East Asia Korea, Republic of
relation	Policy Research Working Paper;No. 2327
description	The authors explore how Koreas financial structure affects the volatility of asset prices. Documented empirical evidence of the relationship between financial structure and financial crisis, sheds light on the relationship between asset price volatility - extreme variations in price - and financial structure. And the volatility of financial and non-financial asset prices provides an indirect link between an economys financial structure and the likelihood of financial crisis. Using time-series data on a se of indicators measuring financial structure, the authors examine how Koreas financial structure affects the volatility of the real effective exchange rate, the money market rate, government bond yields, and stock prices. They find: 1) There is a stable long-term relationship between financial structure and volatility in the real effective exchange rate, the money market rate, stock prices, and the yield on government housing bonds. 2) Financial structure affects asset price variables asymmetrically. Some variables volatility increases, and others diminish, suggesting that monetary policies should target different asset markets to achieve different goals. If the goal of the monetary authority is to stabilize the money market rate, for example, intervening in the banking sector is more efficient than intervening in other financial sub-sectors. 3) The higher volatility of stock prices reflects the thin stock market in Korea. 4) The stability of the yield on government housing bonds reflects the Korean governments policy of stabilizing the nations housing supply by isolating the housing market from the impact of Koreas financial structure. 5) Restrictions on foreigners ownership of domestic stock in Korea during the period analyzed, and the fact that most capital flows through commercial banks, affect the exchange rate, which is determined (at least in the short run) by capital flows in the foreign exchange market.
format	Working Paper
author	Hong G. Min Park, Jong-goo
author_facet	Hong G. Min Park, Jong-goo
author_sort	Hong G. Min
title	How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
title_short	How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
title_full	How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
title_fullStr	How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
title_full_unstemmed	How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices
title_sort	how the republic of korea's financial structure affects the volatility of four asset prices
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2000/04/437747/republic-koreas-financial-structure-affects-volatility-four-asset-prices http://hdl.handle.net/10986/22192
_version_	1764449793383333888

How the Republic of Korea's Financial Structure Affects the Volatility of Four Asset Prices

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