The risk-taking channel of currency appreciation: A structural VAR investigation of Asian emerging market economies

Hyeon seung Huh; David Kim

doi:10.1111/infi.12398

The risk-taking channel of currency appreciation: A structural VAR investigation of Asian emerging market economies

Hyeon seung Huh, David Kim

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

In this study, we analyze the impact of currency appreciation on sovereign spread and economic activities in Asian emerging market economies (EMEs) using a structural vector autoregression model. The key issue under scrutiny is the presence of a risk-taking financial channel and its strength against the conventional trade channel. The underlying structural shocks are identified by a mix of sign, size, and zero restrictions. Based on the various measures of country risk, we find empirical evidence that a currency appreciation is expansionary for Asian EMEs through the financial channel, compressing the sovereign spread and offsetting the trade channel. We provide the policy implications of these results.

Original language	English
Pages (from-to)	313-331
Number of pages	19
Journal	International Finance
Volume	24
Issue number	3
DOIs	https://doi.org/10.1111/infi.12398
Publication status	Published - 2021 Dec 1

Bibliographical note

Funding Information:
We would like to thank two anonymous referees for helpful comments. The research by the first author is supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF‐2020S1A5A2A01041255).

Publisher Copyright:
© 2021 John Wiley & Sons Ltd.

All Science Journal Classification (ASJC) codes

Geography, Planning and Development
Development
Finance

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10.1111/infi.12398

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The risk-taking channel of currency appreciation: A structural VAR investigation of Asian emerging market economies

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