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Exchange Rate Risk Formation in An Import Demand Model: An Application to Korea

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Abstract

This paper attempts to develop and question the validity of an important demand model incorporating a proxy variable representing exchange rate risk. Given the scenario of a newly industrialising economy such as Korea where the scope of established forward exchange markets are limited, behavioural assumptions are made and qualified in order to permit one to concentrate on issues of modelling. Data are constructed and analysed paying particular respect to quality and the various prerequisites for modelling. Three hypotheses of risk formation are tested in two separate models of import demand, using three different proxy variables. It is discovered that for the same period under consideration, the hypothesis of static expectations faced by traders cannot be evidently rejected. JEL classification: F14, F17, 016

Suggested Citation

  • Masih, Rumi, 1998. "Exchange Rate Risk Formation in An Import Demand Model: An Application to Korea," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(2), pages 239-258.
    • Handle: RePEc:ris:ecoint:0308
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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