Short-Term External Debt and Foreign Exchange Rate Volatility in Emerging Economies: Evidence from the Korea Market

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 volati...

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Bibliographic Details
Published in:Emerging markets finance & trade 2014, Vol.50 (sup6), p.138-157
Main Authors: Sung, Taeyoon, Park, Danbee, Park, Ki Young
Format: Article
Language:English
Subjects:
Emerging markets
exchange rate volatility
External debt
Fiscal policy
Foreign exchange rates
short-term external debt
Special Section Market Volatility, Trading Behavior, and Bank Efficiency in Asian Markets
Studies
trading volume
Volatility
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Summary: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 debt-controlling 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.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2014.1013854