<p><br/></p><p></p><p><strong>International reserves management and capital mobility in a volatile world: Policy considerations and a case study of Korea</strong></p><p>This paper characterizes the precautionary demand for international reserves driven by the attempt to<br/>reduce the incidence of costly output decline induced by sudden reversal of short-term capital flows. It<br/>validates the main predictions of the precautionary approach by investigating changes in the patterns of<br/>international reserves in Korea in the aftermath of the 1997–1998 crisis. This crisis provides an interesting<br/>case study, especially because of the rapid rise in Korea’s financial integration in the aftermath of the East<br/>Asian crisis, where foreigners’ shareholding has increased to 40% of total Korean market capitalization.We<br/>show that the crisis led to structural change in the hoarding of international reserves, and that the Korean<br/>monetary authority gives much greater attention to a broader notion of ‘hot money,’ inclusive of short-term<br/>debt and foreigners’ shareholding. J. Japanese Int. Economies 21 (1) (2007) 1–15. UCSC and the NBER<br/>Economics, 1156 High Street, Santa Cruz, CA 95064, USA; Economics Department, Chungbuk National<br/>University, Republic of Korea; Economics Department, Sookmyung Women’s University, Republic of Korea.</p>