Short-term external debt and foreign exchange rate volatility in emerging economies: Evidence from the Korea Market

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Abstract

We empirically analyze the main determinants of foreign exchange rate (FX) volatility in emerging market economies using the data of Korea corporations and financial institutions. We find that short-term external debt is more important than trading volume of foreign investors in explaining FX volatility. Our results suggest that short-term debtcontrolling measures, such as a tax levy on short-term borrowing, can be more effective in moderating FX volatility than can the measures affecting the trading volume, such as a Tobin tax.

Original languageEnglish
Pages (from-to)138-157
Number of pages20
JournalEmerging Markets Finance and Trade
Volume50
DOIs
Publication statusPublished - 2014

Bibliographical note

Funding Information:
Taeyoon Sung (tsung@yonsei.ac.kr), corresponding author, is a professor of economics at the School of Economics, Yonsei University, Seoul, South Korea. Danbee Park (dnbpark@yonsei.ac.kr; dp2695@columbia.edu) is a Ph.D. candidate in economics at the School of Economics at Yonsei University, Seoul, South Korea, and a visiting research scholar at Chazen Institute of International Business, Columbia Business School, Columbia University, New York, New York. Ki Young Park (kypark@yonsei.ac.kr) is an associate professor of economics at the School of Economics at Yonsei University, Seoul, South Korea. This paper has been developed from a research project financially supported by the Korea Institute of Finance, “An Analysis on Determinants of the Increase in Won/ Dollar Exchange Rate Volatility” (in Korean), KIF working paper no. 11-03.

Publisher Copyright:
© 2014 Taylor & Francis Group, LLC. All rights reserved.

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

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