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The effects of the yen|dollar exchange rate on the Korean economy

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Author Info

  • Sammo Kang

    (Dongguk University, Korea)

  • Soyoung Kim

    (Korea University, Korea)

  • Yunjong Wang

    (SK Research Institute for SUPEX Management, Korea)

Abstract

The effects of changes in the yen|dollar exchange rate on the Korean economy during the pre-crisis and the post-crisis periods are examined using VAR models. The results show that Korean industrial production does not respond significantly to the depreciation of the Japanese yen against the US dollar during the pre-crisis period, but that it declines substantially and significantly during the post-crisis period. The forecast error variance decomposition also confirms that the impact of yen|dollar exchange rate shocks in explaining Korean industrial production is negligible during the pre-crisis period, but substantial in the post-crisis period. These empirical results are interesting in that the free-floating exchange rate regime adopted in the post-crisis period may be inadequate to insulate the Korean economy from external shocks such as fluctuations in the yen|dollar exchange rate. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.266
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 10 (2005)
Issue (Month): 2 ()
Pages: 167-183

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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:2:p:167-183

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  1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  3. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, International Monetary Fund.
  4. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
  5. Kenneth A. Froot & Paul Klemperer, 1989. "Exchange Rate Pass-Through When Market Share Matters," NBER Working Papers 2542, National Bureau of Economic Research, Inc.
  6. Thomas Klitgaard, 1999. "Exchange rates and profit margins: the case of Japanese exporters," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 41-54.
  7. Thomas Philippon & Jeromin Zettelmeyer & Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets," IMF Working Papers 01/1, International Monetary Fund.
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