The East Asian financial crisis of 1997 caused a reduction in the credit supply in many of the region’s economies. The monetary authorities implemented a variety of monetary policies to smooth the flow of credit when the credit supply was greatly reduced during the crisis. They expanded the supply of money at the outset of the crisis and they decreased interest rates later. In spite of such efforts, private credit in real terms did not bounce back right away. It took a while for real credit supply to recover to pre-crisis level in the crisis-hit countries.

Korea also experienced such a similar credit shortage problem right at the beginning of the crisis. While much work has been done about the causes and predictability of the financial crisis itself, there has not been much research about credit crunches. In this study we identify the periods of credit crunches using an econometric model.