Private inflows when crises are anticipated: a case study of Korea (A comment)

Comment: Michael Dooley and Inseok Shin make a compelling case that the Korean financial crisis of 1997 was not the consequence of a misaligned exchange rate and external imbalance, nor was it the classic first-generation credit-financed fiscal deficit stressed by Krugman (1979). The authors also cast doubt on explanations of the Korean crisis that rely exclusively on a liquiditycrisis/banking panic story, as in Goldfajn and Valdes (1995), or on earlier models with self-fulfilling expectations (see, for instance, Obstfeld, 1994). Instead, they argue that the Korean banking and currency crises had their origins in the financial liberalization that took place in the earlier part of the 1990s.