Exchange Rate and Output Dynamics between Japan and Korea

24 Pages Posted: 21 Aug 2003

See all articles by Sammo Kang

Sammo Kang

Korea Institute for International Economic Policy

Yunjong Wang

SK Research Institute - Seoul Finance Center

Deok Ryong Yoon

Korea Institute for International Economic Policy

Soyoung Kim

affiliation not provided to SSRN

Date Written: 2003

Abstract

Japan and Korea are close countries in terms of economic interaction as well as geography. To quantify the impact of changes in the yen-dollar exchange rate on the Korean economy before and after the crisis in 1997, the sample period has been divided into two sub-periods and the causal relationships examined by using vector autoregression analysis. Our estimates show that while the response of Korean industrial production to changes in the yen-dollar exchange rate was not significant during the pre-crisis period, it became significant during the post-crisis period. The forecast error variance decomposition also confirms that the yen-dollar exchange rate shocks have almost negligible explanatory power with regards to Korean industrial production during the pre-crisis period, but they have some significance for the postcrisis period. These empirical results show that the free floating exchange rate regime adopted since the crisis cannot insulate the Korean economy from external nominal shocks such as the yen-dollar exchange rate shocks.

JEL Classification: E32, F36, F41

Suggested Citation

Kang, Sammo and Wang, Yunjong and Yoon, Deok Ryong and Kim, Soyoung, Exchange Rate and Output Dynamics between Japan and Korea (2003). HWWA Discussion Paper No. 238. Available at SSRN: https://ssrn.com/abstract=421640 or http://dx.doi.org/10.2139/ssrn.421640

Sammo Kang (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Yunjong Wang

SK Research Institute - Seoul Finance Center ( email )

Seoul
Korea

Deok Ryong Yoon

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Soyoung Kim

affiliation not provided to SSRN ( email )

No Address Available

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