Fear of Floating: Korea's Exchange Rate Policy after the Crisis |
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| Institution: | 1. Kings College, University of London, United Kingdom;2. George Mason University, 3351 Fairfax Dr., MS 3B1 Arlington, VA 22201, USA;3. “Sapienza” University of Rome, via castro laurenziano, 9 - 00161, Rome, Italy;1. Seton Hall University School of Law, USA;2. Department of Psychology and Social Behavior, University of California, Irvine, USA;3. The Forensic Institute, Glasgow, Scotland;4. Whitman School of Management and Forensic and National Security Sciences Institute, Syracuse University, USA;5. University of Maine, USA;6. Wright State University, USA;7. Program on Understanding Law, Science and Evidence (PULSE), UCLA School of Law, USA;8. Emeritus Harvard University, University of California, Riverside, USA;9. Center for Law, Science & Innovation, Arizona State University, USA;10. Northwestern University, USA |
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| Abstract: | The purpose of this paper is to explore the question of whether a free floating exchange rate regime is a viable option for Korea. This paper divides the sample period into three subperiods: pre-crisis, crisis, and post-crisis. We then analyze the causal relationships among both levels and volatility of three financial variables: exchange rates, interest rates, and stock prices. By using Granger causality tests and variance decomposition, our empirical results show that causal relations among the three variables are weak during the post-crisis period, and furthermore, shocks in other financial markets do not have a significant contribution to explain the variations of each variable's forecast errors. Based on these empirical findings, we infer that the Korean government, having adopted the de jure freely floating exchange rate regime, is still fearful of floating for various reasons. J. Japan. Int. Econ., June 2001, 15(2), pp. 225–251. Department of Economics, Korea University, Seoul, Korea; Korea Institute for International Economic Policy, Seoul, Korea. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: F3, F4. |
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