Analysis of Short-term Exchange Rate Movements in Korea: Application of an Extended Mundell-Fleming Model
Extending the Mundell-Fleming model and applying the Newey-West HAC method, this paper finds that the real USD/won exchange rate is negatively affected by real M2, the world interest rate, country risk, the expected inflation rate and the binary variable for the time period during the Asian financial crisis, and positively influenced by the stock market performance and the lagged dependent variable. The coefficient of real government deficit spending is positive but insignificant at the 10% level. Therefore, to maintain the stability of the won, the authorities need to pursue expansionary monetary and fiscal policies with caution, nurture a positive business and investment environment to reduce country risk, maintain a healthy stock market, and enhance the central bank's credibility to lower inflation expectations.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 35 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RGER20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RGER20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Schröder & Robert Dornau, 2000.
"Do Forecasters use Monetary Models? An Empirical Analysis of Exchange Rate Expectations,"
CoFE Discussion Paper
00-14, Center of Finance and Econometrics, University of Konstanz.
- Michael Schroder & Robert Dornau, 2002. "Do forecasters use monetary models? an empirical analysis of exchange rate expectations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 535-543.
- Sarno, Lucio & Wohar, Mark, 2003.
"Monetary Fundamentals and Exchange Rate Dynamics Under Different Nominal Regimes,"
Computing in Economics and Finance 2003
310, Society for Computational Economics.
- Lucio Sarno & Giorgio Valente & Mark E. Wohar, 2004. "Monetary Fundamentals and Exchange Rate Dynamics under Different Nominal Regimes," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 179-193, April.
- Sarno, Lucio & Valente, Giorgio & Wohar, Mark E, 2003. "Monetary Fundamentals and Exchange Rate Dynamics under Different Nominal Regimes," CEPR Discussion Papers 3983, C.E.P.R. Discussion Papers.
- Fujii, Eiji, 2002. "Exchange Rate and Price Adjustments in the Aftermath of the Asian Crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 1-14, January.
- Osman Suliman, 2005. "Interest rate volatility, exchange rates, and external contagion," Applied Financial Economics, Taylor & Francis Journals, vol. 15(12), pages 883-894.
- David M. Gould & Steven B. Kamin, 2000. "The impact of monetary policy on exchange rates during financial crises," International Finance Discussion Papers 669, Board of Governors of the Federal Reserve System (U.S.).
- Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,"
Econometric Society, vol. 55(3), pages 703-08, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Alan M. Taylor & Mark P. Taylor, 2004.
"The Purchasing Power Parity Debate,"
NBER Working Papers
10607, National Bureau of Economic Research, Inc.
- Kenneth N. Kuttner & Patricia C. Mosser, 2002. "The monetary transmission mechanism: some answers and further questions," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 15-26.
- Friedman, Milton, 1988. "Money and the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 221-45, April.
- Hyeon-Seung Huh, 1999. "How well does the Mundell-Fleming model fit Australian data since the collapse of Bretton Woods?," Applied Economics, Taylor & Francis Journals, vol. 31(3), pages 397-407.
- Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
- Maurice Obstfeld, 2003.
"International Macroeconomics: Beyond the Mundell-Fleming Model,"
- Obstfeld, Maurice, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research, Working Paper Series qt6796n8s0, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Maurice Obstfeld, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," NBER Working Papers 8369, National Bureau of Economic Research, Inc.
- Maurice Obstfeld., 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research (CIDER) Working Papers C01-121, University of California at Berkeley.
- Taylor, Mark P. & Sarno, Lucio, 1998.
"The behavior of real exchange rates during the post-Bretton Woods period,"
Journal of International Economics,
Elsevier, vol. 46(2), pages 281-312, December.
- Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
- Baig, Taimur & Goldfajn, Ilan, 2002.
"Monetary Policy in the Aftermath of Currency Crises: The Case of Asia,"
Review of International Economics,
Wiley Blackwell, vol. 10(1), pages 92-112, February.
- Ilan Goldfajn & Taimur Baig, 1999. "Monetary policy in the aftermath of currency crisis: the case of Asia," Textos para discussão 399, Department of Economics PUC-Rio (Brazil).
- Taimur Baig & Ilan Goldfajn, 1998. "Monetary Policy in the Aftermath of Currency Crisis; The Case of Asia," IMF Working Papers 98/170, International Monetary Fund.
- Ramirez, Carlos D., 2004. "Monetary policy and the credit channel in an open economy," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 363-369.
- "Ito, Takatoshi", 1999. "Asian Currency Crises and the IMF," Economic Review, Hitotsubashi University, vol. 50(1), pages 68-93, January.
- Dekle, Robert & Hsiao, Cheng & Wang, Siyan, 2001. " Do High Interest Rates Appreciate Exchange Rates during Crisis? The Korean Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(3), pages 359-80, July.
- Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
When requesting a correction, please mention this item's handle: RePEc:taf:glecrv:v:35:y:2006:i:2:p:145-151. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.