Open AccessDo Exchange Rate Changes have Symmetric or Asymmetric Effects on the Demand for Money in Korea?
Author(s) -
Mohsen BahmaniOskooee,
Jungho Baek
Publication year - 2017
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.101
H-Index - 1
ISSN - 1973-3909
DOI - 10.15353/rea.v9i2.1439
Subject(s) - economics , cointegration , depreciation (economics) , exchange rate , econometrics , monetary economics , demand for money , demand curve , interest rate , microeconomics , profit (economics) , capital formation , financial capital
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.