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Empirical Analysis of the Psychological Hypothesis on Exchange Rate Determination and Testing Its Forecastability: The Korean Experience

Author

Listed:
  • Rhee, Hyun-Jae

    (Chongju University)

Abstract

The role of psychological impact is examined by investigating the determination of exchange rates, especially the U.S. Dollar. It has been applied to the Korean economic crisis which occurred between January 1997 and June 1999. The basic idea is that psychological information can be used in generating rational expectation, and accordingly, it would induce exchange market clearance. While psychological hypothesis is weakly supported, results reveal that the U.S. Dollar can be determined by psychological impact. The ex-post simulation process also proves it. The understanding of psychological impact is necessary for the implementation of foreign exchange policies.

Suggested Citation

  • Rhee, Hyun-Jae, 2002. "Empirical Analysis of the Psychological Hypothesis on Exchange Rate Determination and Testing Its Forecastability: The Korean Experience," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 449-473.
    • Handle: RePEc:ris:integr:0203
    as

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    More about this item

    Keywords

    Market Sentiment; Psychological Hypothesis; GARCH-M Model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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