Do Exchange Rate Changes Have Symmetric or Asymmetric Effects on the Demand for Money in Korea?

Review of Economic Analysis 9 (2), 155-168 (2017)

14 Pages Posted: 11 Jan 2018

See all articles by Mohsen Bahmani‐Oskooee

Mohsen Bahmani‐Oskooee

University of Wisconsin - Milwaukee - Center for Research on International Economics

Jungho Baek

University of Alaska Fairbanks - School of Management (SOM)

Date Written: January 8, 2018

Abstract

Previous studies that included the exchange rate in the Korean demand for money assumed that the effects of the exchange rate changes are symmetric and adjustment process is linear. They found no significant effects. In this paper we apply Shin et al.’s (2014) Nonlinear ARDL approach to cointegration and error-correction modeling and test the symmetric versus asymmetric effects of exchange rate changes on the demand for money in Korea. Using quarterly data over the period 1973-2014, the results show that indeed the effects are asymmetric in the short run. In the long run, however, although the effects are symmetric but both won depreciation and won appreciation have significantly negative effects on the demand for money, supporting the wealth effects argument.

Keywords: Nonlinear ARDL Approach, Symmetry versus Asymmetry, Money Demand, Korea

JEL Classification: F31, F40

Suggested Citation

Bahmani-Oskooee, Mohsen and Baek, Jungho, Do Exchange Rate Changes Have Symmetric or Asymmetric Effects on the Demand for Money in Korea? (January 8, 2018). Review of Economic Analysis 9 (2), 155-168 (2017). Available at SSRN: https://ssrn.com/abstract=3098636

Mohsen Bahmani-Oskooee (Contact Author)

University of Wisconsin - Milwaukee - Center for Research on International Economics ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States

Jungho Baek

University of Alaska Fairbanks - School of Management (SOM) ( email )

P.O. Box 756080
Fairbanks, AK 99775-0500
United States

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