De Facto Exchange Rate Regime in Korea: Is It Still A Dollar Peg?

• Main Author: Han Geun Moon
• Format: Article
• Language: English
• Published: Korea Institute for International Economic Policy 2002-06-01
• Series: East Asian Economic Review
• Subjects: De facto Exchange Rate Regime; Dollar peg and Pure-floating
• Online Access: http://dx.doi.org/10.11644/KIEP.JEAI.2002.6.1.90
• ISSN: 2508-1640; 2508-1667

The purpose of this paper is to test the common view on the actual exchange rate regime, using very simple but intuitive OLS regression models based on Frankel and Wei's work (1994). The results show that, firstly, East Asian countries including Korea have returned to the dollar peg or managed floating after the restoration from the crisis, as they did during the pre-crisis period. The results also show that Korea has substantially changed her exchange rate regime since January 2001, but other countries, even Taiwan and Singapore which had no crisis, are still the same as before. The sensitivity to the dollar has statistically significantly decreased, but sensitivity to the yen is almost twice as much as those in other countries. This result might come from the synchronization of Korean won with Japanese yen from November 2000, the change of the monetary policy framework from monetary targeting to the pure inflation targeting, and the full capital and foreign exchange liberalization since the second stage of foreign exchange liberalization (January 2001). However, 6 months (January 2001-June 15, 2001) is not enough to assess policy changes, and, we continuously need to monitor how the exchange rate policy evolves.