The Korean Crisis: What Did We Know and When Did We Know It? What Stress Tests of the Corporate Sector Reveal

Author/Editor:

Meral Karasulu ; Matthew T Jones

Publication Date:

May 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The objective of this paper is to provide a retrospective assessment of our ability to have predicted the impact of the 1997 crisis on the Korean corporate sector. We perform some simple stress tests on the aggregate balance sheets and income statements of the corporate sector to determine what could have been foreseen before the onset of the crisis. Our results show that data available in mid-1997 clearly showed that the corporate sector was very sensitive to various shocks, particularly interest rate shocks. Had stress tests been performed at the time, they would have revealed that the corporate sector was highly vulnerable to adverse economic developments. Our findings suggest that close surveillance of corporate sector balance sheets can play a useful role in understanding potential financial vulnerabilities.

Series:

Working Paper No. 2006/114

Subject:

Corporate sector Exchange rates Financial statements Personal income Stress testing

English

Publication Date:

May 1, 2006

ISBN/ISSN:

9781451863741/1018-5941

Stock No:

WPIEA2006114

Pages:

21

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