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Short-Term External Debt and Foreign Exchange Rate Volatility in Emerging Economies: Evidence from the Korea Market

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  • Taeyoon Sung
  • Danbee Park
  • Ki Young Park

Abstract

We empirically analyze the main determinants of foreign exchange rate (FX) volatility in emerging market economies using the data of Korea corporations and financial institutions. We find that short-term external debt is more important than trading volume of foreign investors in explaining FX volatility. Our results suggest that short-term debt-controlling measures, such as a tax levy on short-term borrowing, can be more effective in moderating FX volatility than can the measures affecting the trading volume, such as a Tobin tax.

Suggested Citation

  • Taeyoon Sung & Danbee Park & Ki Young Park, 2014. "Short-Term External Debt and Foreign Exchange Rate Volatility in Emerging Economies: Evidence from the Korea Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S6), pages 138-157, November.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s6:p:138-157
    DOI: 10.1080/1540496X.2014.1013854
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    1. Taeyoon Sung & Jong-Hee Kim, 2016. "Unconventional Monetary Policy, Global Liquidity Circulation, and Inflation Divergence around the World," The Developing Economies, Institute of Developing Economies, vol. 54(1), pages 6-26, March.
    2. Kutan, Ali M. & Muradoğlu, Yaz G., 2016. "Financial and real sector returns, IMF-related news, and the Asian crisis," Finance Research Letters, Elsevier, vol. 16(C), pages 28-37.

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