Are Currencies Coordinating? The Coupling-Decoupling Behavior of Won-Dollar and Yen-Dollar Exchange Rates

Seoul Journal of Economics, Vol. 25, No. 4, pp. 367-386, 2012

20 Pages Posted: 30 Nov 2012

See all articles by Jae-Young Kim

Jae-Young Kim

Seoul National University - Department of Economics

Yun-Jong Wang

SK China

Woong Yong Park

Seoul National University

Date Written: November 30, 2012

Abstract

This paper studies dynamic relation, namely, two currencies of Korean won and Japanese yen, before and after the East Asian financial crisis of the late 1990s. We conjecture that there exists a long-run relation between won and yen, which is characterized by a band-reverting-type dynamic behavior. This band-reverting behavior of the two currencies implies that their relative values maintain a stable relation, keeping their discrepancy within a certain bound or band. Such band-reverting behavior is due to the arbitrage-seeking behavior of investors or the market intervention of monetary authorities. Our empirical analysis shows that the two currencies have a long-run equilibrium relation that implies a band-reverting-type dynamic relation. Our analysis also shows that this band-reverting relation becomes clearer in the post-crisis period.

Keywords: band-reverting behavior, threshold cointegration, structural change, financial crisis, Won-Yen exchange rate

JEL Classification: C1, C5, F31, G15

Suggested Citation

Kim, Jae-Young and Wang, Yun-Jong and Park, Woong Yong, Are Currencies Coordinating? The Coupling-Decoupling Behavior of Won-Dollar and Yen-Dollar Exchange Rates (November 30, 2012). Seoul Journal of Economics, Vol. 25, No. 4, pp. 367-386, 2012, Available at SSRN: https://ssrn.com/abstract=2182378

Jae-Young Kim (Contact Author)

Seoul National University - Department of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742
Korea

Yun-Jong Wang

SK China ( email )

Seorin Dong 99
Jongro Gu
Seoul, 100022
China

Woong Yong Park

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

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