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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 19, No. 1, pp.67-110
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2006
Received 15 Sep 2005 Revised 28 Oct 2005

Coupling for the Won-Dollar and Yen-Dollar Rates under the Floating Exchange Rate System in Korea: A Fractional Cointegration Approach

Jeongseok Song
Research Fellow at the Korean Economic Research Institute, FKI Building, 28-1, Yoido-dong, Yeongdungpo-ku, Seoul 150-756, Korea, Tel: +82-2-3771-0022 jssong@keri.org

JEL Classfication: C22, E41, E31

Abstract

The coupling for the exchange rates for the Won and Yen is regarded as a unique phenomenon since extremely similar movement among different currencies' exchange rates is rarely observed despite the recent world economy integration. This paper considers the exchange rate risk, macroeconomic factors, and the foreign reserves as determinants of the Won-Yen coupling especially for the post-crisis period since the late 90s, and finally compares the three groups of factors to identify the major driving force of the coupling pattern. The empirical findings in the paper suggest that the exchange rate risk for the two currencies is more significantly related to the Won-Yen coupling behavior than the other factors.

Keywords:

Won-Yen coupling, Exchange rate risk, Realized volatility, Fractional cointegration

Acknowledgments

I am grateful to all the participants at the 13th Seoul Journal of Economics International Symposium, September 23, 2005, and the KERI seminar including Dr. Chan-Kuk Huh, Dr. Soo-Hee Lee at KERI, Professor Jae-Young Kim in Seoul National University, and other participants. Also, I have received valuable comments from Dr. Chae-Shick Chung in Sogang University. Dr. Sung-Tae Ro, the president of the KERI, and Dr. Inhak Hwang provided superb research circumstance for this paper. In addition, Professor Jae-Young Kim provided a lot of helpful comments for the final version of this paper. Finally, I appreciate Ms. Yun-Hee Cho's excellent editorial assistance. Needless to say, any errors in this manuscript are mine. This paper does not represent any official opinion of the Korean Economic Research Institute.

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