Long term Equilibrium Analysis of East Asian Currencies within Global Financial Markets

Analysis of the Long-Term Equilibrium Relationship Between Exchange Rates of KRW, RMB, JPY and International Financial Market Variables

Volume 5, Issue 6, Page No.744-761, Year 2020

Authors:

Moon-Kyum Kim Corresponding Author a

Woong Ryeol Kim b

Affiliations:

a Department of Economics, Sungshin Women's University

b DepartmentInstitution, UniversitySchool

Contact Eml: [email protected]

DOI: 10.25046aj050690

Keywords: Currency exchange rate; RMB; Yuan; CNY; CNH; KRW; JPY; NDF; VECM

Introduction:

This study employs Vector Error Correction Model VECM analysis to investigate the long-term equilibrium relationship between South Korea's Korean Won, China's Chinese Yuan CNY, and Japan's Japanese Yen JPY; as well as their interrelations with international financial market variables. The analyzed variables include spot exchange rates of each currency pr and key indicators from the global financial markets.

Findings:

1. A long-term equilibrium relationship is identified between KRW, RMB, JPY, and international financial market variables.

2. VECM analysis reveals that South Korea's offshore Won-Dollar relationship explns approximately 50 of the onshore Won-Dollar dynamics.

3. The VECMs for the Yuan indicate that both its onshore CNY and offshore CNH counterparts have influence, though each exhibits distinct characteristics.

4. In terms of international integration, Korea's exchange rates appear more linked to global financial markets compared to China's Yuan.

5. The Japanese Yen demonstrates stronger linkages with financial market variables than the Won or Yuan.

Policy Implications:

1. Emphasizing a holistic perspective when evaluating currency movements through the lens of global financial markets is crucial.

2. Incorporating both onshore and offshore Yuan dynamics in investment strategies and risk management is advisable given their interconnection yet nuanced differences.

3. Managing exchange rate positions requires considering the long-term equilibrium between Won, Yuan, and Yen currencies.

4. Korean companies should leverage the unique characteristics of South Korea's partially internationalized Won currency.

:

The study employs VECM analysis to assess the long-run equilibrium relationship among South Korean Won, Chinese Yuan including both onshore CNY and offshore CNH, Japanese Yen spot exchange rates, alongside key global financial market variables. The analysis reveals insights into the long-term interdepency and causality relationships between these currencies and international markets.

:

The paper highlights the intricate dynamics of East Asian currencies within the broader context of international finance. It underscores the importance of considering not just national but also global financial market conditions when assessing exchange rate movements, particularly for China's Yuan given its dual onshore-offshore trading platforms. The study suggests that Korea's Won shows a distinctive pattern compared to both Chinese Yuan and Japanese Yen in terms of integration with international markets.

Acknowledgements:

The authors ext their appreciation to mention any specific institutionsindividuals who contributed valuable insights and resources for this research.

References:

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Keywords:

Currency, RMB, Yuan, CNY, CNH, KRW, JPY, NDF, VECM

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