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Asymmetric impacts of foreign exchange reserves on the exchange rate in Korea

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  • Chee-Hong Law

Abstract

This paper investigates the impact of foreign exchange reserves on the value of the Korean won relative to the US dollar using a comparison of linear and nonlinear autoregressive distributed lag estimation. This paper, to the best of the author's knowledge, is the first paper examining the nonlinear dynamics between the Korean foreign exchange reserves and the exchange rate. In the linear model, the foreign exchange reserves do not have a significant impact. In contrast, the nonlinear models reveal that only the reduction in the reserves will cause the Korean won to appreciate in the long run. In the short run, increases and decreases in the foreign exchange reserves are significant. There is also evidence supporting the hypothesis of sign bias in long-run and short-run relationships. Additionally, the asymmetric patterns are found for long-run and short-run effects, indicating the importance of measuring the nonlinear effects.

Suggested Citation

  • Chee-Hong Law, 2019. "Asymmetric impacts of foreign exchange reserves on the exchange rate in Korea," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 18(1), pages 73-93.
    • Handle: RePEc:ids:ijecbr:v:18:y:2019:i:1:p:73-93
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    Cited by:

    1. Haryo Kuncoro & Caroline Geetha & Fafurida Fafurida, 2024. "Central Bank Intervention and Exchange Rate Volatility in the Inflation-Targeting Regime," Economic Research Guardian, Weissberg Publishing, vol. 14(1), pages 2-15, June.

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