Financial and capital account liberalization in the Pacific Basin: Korea and Taiwan during the 1980's

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Abstract
This paper presents an alternative method of testing for financial capital mobility in the absence of forward exchange markets. A model of domestic interest rate determination during liberalization is applied to Korean and Taiwanese data. A variety of diagnostic and recursive tests are used to isolate structural breaks in the data. It is shown that Korean interest rates behave as if determined domestically until late 1988, while Taiwanese rates exhibit this behavior until early 1989.
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