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Foreign Exchange Rate Uncertainty in Korea

Author

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  • Lee, Seojin

    (Hongik University)

Abstract

Applying Ismailov and Rossi (2018), I newly construct the Korea FX uncertainty based on the density distribution of historical forecast errors. This uncertainty index properly captures the rare but significant events in the Korean currency market and provides information distinct from other uncertainty measures in recent studies. I show that 1) FX uncertainty arising from unexpected depreciation has a stronger impact on Korea- U.S. exchange rates and that 2) macro variables, such as capital flows or interest rate differentials, have predictive ability regarding Korea FX uncertainty for short horizons. These findings enable us to predict the events of sudden currency crashes and understand the Korea-U.S. exchange rate dynamics.

Suggested Citation

  • Lee, Seojin, 2020. "Foreign Exchange Rate Uncertainty in Korea," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 24(2), pages 165-184, June.
    • Handle: RePEc:ris:eaerev:0375
    DOI: 10.11644/KIEP.EAER.2020.24.2.375
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    Cited by:

    1. Nevi Danila, 2023. "The Asymme The Asymmetric Ex Tric Exchange Ra Ange Rate Pass-Through T Ass-Through To Inflation In The Selected Asean Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 125-144, March.
    2. Faaza Fakhrunnas & Rindang Nuri Isnaini Nugrohowati & Razali Haron & MB Hendrie Anto, 2023. "The Asymmetric Relationship Between Macroeconomic Determinants And Nonperforming Loans: Evidence From The Banking Industry Of Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 145-174, March.

    More about this item

    Keywords

    Exchange Rate; Uncertainty; Currency Risk; Uncovered Interest Rate Parity; Uncertainty Index;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F30 - International Economics - - International Finance - - - General

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