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Do High Interest Rates Appreciate Exchange Rates during Crisis? The Korean Evidence

  • Dekle, Robert
  • Hsiao, Cheng
  • Wang, Siyan

This paper tries to answer the following basic question: have the high interest rates had the desired effect of appreciating the nominal exchange rates in the Asian crisis countries? We use Korean high-frequency (weekly) data during the crisis and its aftermath to examine the relationship between the increase in interest rates and the behaviour of exchange rates. We find that the lead-lag relation between the exchange rate and the interest rate clearly indicates that raising the interest rate has had the usual impact of appreciating the nominal exchange rate during the crisis period. Copyright 2001 by Blackwell Publishing Ltd

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 63 (2001)
Issue (Month): 3 (July)
Pages: 359-80

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Handle: RePEc:bla:obuest:v:63:y:2001:i:3:p:359-80
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  1. Leamer, Edward E & Leonard, Herman B, 1983. "Reporting the Fragility of Regression Estimates," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 306-17, May.
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  7. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  8. Cheng Hsiao, 1997. "Cointegration and Dynamic Simultaneous Equations Model," Econometrica, Econometric Society, vol. 65(3), pages 647-670, May.
  9. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
  10. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
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  13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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