Pub Date : 2020-12-31DOI: 10.11644/kiep.eaer.2020.24.4.388
Joshua Aizenman,Hiro Ito
{"title":"U.S. Macro Policies and Global Economic Challenges","authors":"Joshua Aizenman,Hiro Ito","doi":"10.11644/kiep.eaer.2020.24.4.388","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.4.388","url":null,"abstract":"","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138516890","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-12-31DOI: 10.11644/kiep.eaer.2020.24.4.387
Xiang Gao, Z. Gu, K. Koedijk
Capital inflows have a strong presence that influences destination countries' development of institutions, which can in turn help resuscitate a stopped economy and re-attract capital that was lost during crises such as the recent public health crisis While the previous literature emphasizes the mechanism that foreign investors press or even threaten the local government for change, this paper explores empirically whether institutional improvement can be achieved through the channel that host countries voluntarily reform institutions in anticipation of potential investments predicted by the exogenous geographical and cultural characteristics of the recipient countries Given that countries with better institutional quality can accumulate larger FDI stocks, we still find that the need for more FDI, in contrast to FPI and debt, gives higher incentives to host countries to strategically improve their institutions before seeking capital overseas Moreover, the predicted FDI exerts more prominent impacts on institutions on constraining elite than those involved in launching a business, enforcing contracts, and protecting properties The results imply that a long-run plan for upgrading elite constraint institutions is crucial for a post-pandemic FDI reboot
{"title":"On the Role of Projected FDI Inflows in Shaping Institutions","authors":"Xiang Gao, Z. Gu, K. Koedijk","doi":"10.11644/kiep.eaer.2020.24.4.387","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.4.387","url":null,"abstract":"Capital inflows have a strong presence that influences destination countries' development of institutions, which can in turn help resuscitate a stopped economy and re-attract capital that was lost during crises such as the recent public health crisis While the previous literature emphasizes the mechanism that foreign investors press or even threaten the local government for change, this paper explores empirically whether institutional improvement can be achieved through the channel that host countries voluntarily reform institutions in anticipation of potential investments predicted by the exogenous geographical and cultural characteristics of the recipient countries Given that countries with better institutional quality can accumulate larger FDI stocks, we still find that the need for more FDI, in contrast to FPI and debt, gives higher incentives to host countries to strategically improve their institutions before seeking capital overseas Moreover, the predicted FDI exerts more prominent impacts on institutions on constraining elite than those involved in launching a business, enforcing contracts, and protecting properties The results imply that a long-run plan for upgrading elite constraint institutions is crucial for a post-pandemic FDI reboot","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48398956","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-12-30DOI: 10.11644/kiep.eaer.2020.24.4.381
Alan V. Deardorff, Soyoung Kim, Chul Chung
[ ]trade and financial integration/globalization tend to have a positive correlation, as documented in some past studies [ ]the size of outstanding crossborder assets and liabilities is huge, as a result of financial transactions made in past decades [ ]some reversals in capital flows seen during COVID-19 will not affect the size of cross-border assets and liabilities in a major way [ ]financial globalization may help to slow down the de-globalization of trade after COVID-19 [ ]on dispute resolution, Hoekman does not need to remind us of the current sad state of the Dispute Settlement Understanding, and his main suggestion here is that reforms not be limited to only fixing the Appellate Body, but rather should include improving the panel process, though he does not say how to do that
{"title":"The Global Economy after COVID-19","authors":"Alan V. Deardorff, Soyoung Kim, Chul Chung","doi":"10.11644/kiep.eaer.2020.24.4.381","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.4.381","url":null,"abstract":"[ ]trade and financial integration/globalization tend to have a positive correlation, as documented in some past studies [ ]the size of outstanding crossborder assets and liabilities is huge, as a result of financial transactions made in past decades [ ]some reversals in capital flows seen during COVID-19 will not affect the size of cross-border assets and liabilities in a major way [ ]financial globalization may help to slow down the de-globalization of trade after COVID-19 [ ]on dispute resolution, Hoekman does not need to remind us of the current sad state of the Dispute Settlement Understanding, and his main suggestion here is that reforms not be limited to only fixing the Appellate Body, but rather should include improving the panel process, though he does not say how to do that","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43930868","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-09-30DOI: 10.11644/kiep.eaer.2020.24.3.377
Oded Stark, Grzegorz Kosiorowski
Acknowledging that individuals dislike having low relative income renders trade less attractive when seen as a technology that integrates two economies by merging separate social spheres into one. We define a “trembling trade” as a situation in which gains from trade are less than losses in relative income, with the result that global social welfare is reduced. We show that a “trembling trade” can arise even when trade is more gainful in four ways: through trade the absolute income of everyone increases, the income gap in both economies is reduced, as is the income gap between the trading economies. However, trade brings populations, economies, or markets that were not previously connected closer together in social space. As a consequence, separate social spheres merge, and people’s social space and their comparators are altered. Assuming that people like high (absolute) income and dislike low relative income, the aggregate increase in unhappiness caused by the trade-induced escalation in relative deprivation can result in a negative overall impact of trade on (utilitarian-measured) social welfare, if the absolute income gains are not large enough to mitigate the relative income losses.
{"title":"An Adverse Social Welfare Effect of Quadruply Gainful Trade","authors":"Oded Stark, Grzegorz Kosiorowski","doi":"10.11644/kiep.eaer.2020.24.3.377","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.3.377","url":null,"abstract":"Acknowledging that individuals dislike having low relative income renders trade less attractive when seen as a technology that integrates two economies by merging separate social spheres into one. We define a “trembling trade” as a situation in which gains from trade are less than losses in relative income, with the result that global social welfare is reduced. We show that a “trembling trade” can arise even when trade is more gainful in four ways: through trade the absolute income of everyone increases, the income gap in both economies is reduced, as is the income gap between the trading economies. However, trade brings populations, economies, or markets that were not previously connected closer together in social space. As a consequence, separate social spheres merge, and people’s social space and their comparators are altered. Assuming that people like high (absolute) income and dislike low relative income, the aggregate increase in unhappiness caused by the trade-induced escalation in relative deprivation can result in a negative overall impact of trade on (utilitarian-measured) social welfare, if the absolute income gains are not large enough to mitigate the relative income losses.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138496286","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-06-30DOI: 10.11644/kiep.eaer.2020.24.2.375
S. Lee
Applying Ismailov and Rossi (2018), I newly construct the Korea FX uncertainty based on the density distribution of historical forecast errors. This uncertainty index properly captures the rare but significant events in the Korean currency market and provides information distinct from other uncertainty measures in recent studies. I show that 1) FX uncertainty arising from unexpected depreciation has a stronger impact on Korea- U.S. exchange rates and that 2) macro variables, such as capital flows or interest rate differentials, have predictive ability regarding Korea FX uncertainty for short horizons. These findings enable us to predict the events of sudden currency crashes and understand the Korea-U.S. exchange rate dynamics.
{"title":"Foreign Exchange Rate Uncertainty in Korea","authors":"S. Lee","doi":"10.11644/kiep.eaer.2020.24.2.375","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.2.375","url":null,"abstract":"Applying Ismailov and Rossi (2018), I newly construct the Korea FX uncertainty based on the density distribution of historical forecast errors. This uncertainty index properly captures the rare but significant events in the Korean currency market and provides information distinct from other uncertainty measures in recent studies. I show that 1) FX uncertainty arising from unexpected depreciation has a stronger impact on Korea- U.S. exchange rates and that 2) macro variables, such as capital flows or interest rate differentials, have predictive ability regarding Korea FX uncertainty for short horizons. These findings enable us to predict the events of sudden currency crashes and understand the Korea-U.S. exchange rate dynamics.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42679553","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-06-30DOI: 10.11644/kiep.eaer.2020.24.2.374
F. Lichtenberg
We perform an econometric assessment of the role that pharmaceutical innovation— the introduction and use of new drugs—has played in improving the health of Koreans, by investigating whether diseases for which more new drugs were launched had larger subsequent increases in longevity and smaller subsequent increases in hospitalization. Drugs launched during 1993-2012 are estimated to have increased mean age at death from all diseases by 1.71 years between 1995 and 2015 and 1.09 years between 2005 and 2015. We also estimate that new drugs increased the five-year relative survival rate from all cancers combined by 23.2 percentage points—78.5% of the total increase—between 1993-1995 and 2011-2015, and that new drugs launched during 2008-2010 reduced the number of hospital days in 2017 by 13.0 million. If the drugs launched during 2003-2012 had had no effect on other medical expenditure in 2015, the cost per life-year gained would not have exceeded 6332 USD. Therefore, even if we ignore the effect of new drugs on hospital utilization, the drugs launched during 2003-2012 were very cost–effective, overall. When reduced hospital utilization is accounted for, the evidence indicates that, in the long run, pharmaceutical innovation was cost-saving as well as life-year saving.
{"title":"The Health Impact of, and access to, New Drugs in Korea","authors":"F. Lichtenberg","doi":"10.11644/kiep.eaer.2020.24.2.374","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.2.374","url":null,"abstract":"We perform an econometric assessment of the role that pharmaceutical innovation— the introduction and use of new drugs—has played in improving the health of Koreans, by investigating whether diseases for which more new drugs were launched had larger subsequent increases in longevity and smaller subsequent increases in hospitalization. Drugs launched during 1993-2012 are estimated to have increased mean age at death from all diseases by 1.71 years between 1995 and 2015 and 1.09 years between 2005 and 2015. We also estimate that new drugs increased the five-year relative survival rate from all cancers combined by 23.2 percentage points—78.5% of the total increase—between 1993-1995 and 2011-2015, and that new drugs launched during 2008-2010 reduced the number of hospital days in 2017 by 13.0 million. If the drugs launched during 2003-2012 had had no effect on other medical expenditure in 2015, the cost per life-year gained would not have exceeded 6332 USD. Therefore, even if we ignore the effect of new drugs on hospital utilization, the drugs launched during 2003-2012 were very cost–effective, overall. When reduced hospital utilization is accounted for, the evidence indicates that, in the long run, pharmaceutical innovation was cost-saving as well as life-year saving.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49259226","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-06-30DOI: 10.11644/kiep.eaer.2020.24.2.376
Hahn-Shik Lee, Woori Lee
This paper investigates the connectedness among housing markets using the methodology developed in Diebold and Yilmaz (2014, 2016). In particular, we examine the international linkages among housing markets in Northeast Asian countries: namely, China, Japan, and Korea. The basic finding is that connectedness measures vary over the business cycle, with a surge during the global financial crisis. However, the international linkages among the three Asian housing markets seem rather weak. By including GDP in the model, we also find that housing market in one country is more affected by its own economic conditions than that of neighboring countries. Given earlier evidence that cross-regional spillover among domestic housing markets is high, this result suggests that housing market connectedness is more of domestic cross-regional phenomena, rather than international ones.
{"title":"Connectedness among Northeast Asian Housing Markets and Business Cycles","authors":"Hahn-Shik Lee, Woori Lee","doi":"10.11644/kiep.eaer.2020.24.2.376","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.2.376","url":null,"abstract":"This paper investigates the connectedness among housing markets using the methodology developed in Diebold and Yilmaz (2014, 2016). In particular, we examine the international linkages among housing markets in Northeast Asian countries: namely, China, Japan, and Korea. The basic finding is that connectedness measures vary over the business cycle, with a surge during the global financial crisis. However, the international linkages among the three Asian housing markets seem rather weak. By including GDP in the model, we also find that housing market in one country is more affected by its own economic conditions than that of neighboring countries. Given earlier evidence that cross-regional spillover among domestic housing markets is high, this result suggests that housing market connectedness is more of domestic cross-regional phenomena, rather than international ones.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"64805220","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-31DOI: 10.11644/kiep.eaer.2020.24.1.373
Gongpil Choi
Even with the sizable Foreign Exchange (FX) holdings and good credit ratings of its top assets, Asia remains vulnerable to various shocks. This paper highlights the limited crossborder asset pledgeability as a significant factor for the lingering vulnerability in Asia. The dichotomy in asset holdings between pledgeable FX and non-pledgeable domestic assets in major economies in Asia has been the source of increasing stabilization costs as well as weakened market momentum in the region. Specifically, the peculiar feature of asset holdings in Asia reflects seriously deficient cross-border asset pledgeability that is left unaddressed. Asset pledgeability contributes toward financial stability via three channels: 1) capital market development by recognizing the role of collateral, 2) increased shock absorption capacity via collateral management, 3) and the newly activated safe asset provision. Therefore, it is crucial to go beyond the usual market development strategy and expand the overall asset pledgeability in the region that has remained unduly depressed.
{"title":"Cross-Border Asset Pledgeability for Enhanced Financial Stability","authors":"Gongpil Choi","doi":"10.11644/kiep.eaer.2020.24.1.373","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.1.373","url":null,"abstract":"Even with the sizable Foreign Exchange (FX) holdings and good credit ratings of its top assets, Asia remains vulnerable to various shocks. This paper highlights the limited crossborder asset pledgeability as a significant factor for the lingering vulnerability in Asia. The dichotomy in asset holdings between pledgeable FX and non-pledgeable domestic assets in major economies in Asia has been the source of increasing stabilization costs as well as weakened market momentum in the region. Specifically, the peculiar feature of asset holdings in Asia reflects seriously deficient cross-border asset pledgeability that is left unaddressed. Asset pledgeability contributes toward financial stability via three channels: 1) capital market development by recognizing the role of collateral, 2) increased shock absorption capacity via collateral management, 3) and the newly activated safe asset provision. Therefore, it is crucial to go beyond the usual market development strategy and expand the overall asset pledgeability in the region that has remained unduly depressed.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138496285","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-31DOI: 10.11644/kiep.eaer.2020.24.1.370
Byung-il Choi
This paper analyzes how the current Global Value Chain (GVC) of East Asia has been established, and attempts to project the future trajectory of GVC under New Normal in the global trading system. For this purpose, the framework of Ideology-TechnologyInstitution nexus is presented with focus on the dynamics of interplay between ideology and technology, duly recognizing the dual-aspect of technology- a platform for business and also for national defense. The paper analyzes how the Information and Communication Technology (ICT) of the 1990s played a role of “facilitator” in shaping the GVC of East Asia, where China plays ‘factory for final assembly’ and the US plays ‘the largest consumer’. Under New Normal, digital technology is likely to play the opposite role of “disrupting” the GVC of East Asia, unlike ICT. The paper explores the mechanism behind this great disruption. What is driving New Normal is the US-China power competition, seeking for dominance in East Asia and beyond. This paper argues that New Normal is not temporary shock, but will last for some time. Under this presumption, the paper presents three scenarios for the future trajectory of GVC in East Asia.
{"title":"Global Value Chain in East Asia Under \"New Normal\": Ideology- Technology-Institution Nexus","authors":"Byung-il Choi","doi":"10.11644/kiep.eaer.2020.24.1.370","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.1.370","url":null,"abstract":"This paper analyzes how the current Global Value Chain (GVC) of East Asia has been established, and attempts to project the future trajectory of GVC under New Normal in the global trading system. For this purpose, the framework of Ideology-TechnologyInstitution nexus is presented with focus on the dynamics of interplay between ideology and technology, duly recognizing the dual-aspect of technology- a platform for business and also for national defense. The paper analyzes how the Information and Communication Technology (ICT) of the 1990s played a role of “facilitator” in shaping the GVC of East Asia, where China plays ‘factory for final assembly’ and the US plays ‘the largest consumer’. Under New Normal, digital technology is likely to play the opposite role of “disrupting” the GVC of East Asia, unlike ICT. The paper explores the mechanism behind this great disruption. What is driving New Normal is the US-China power competition, seeking for dominance in East Asia and beyond. This paper argues that New Normal is not temporary shock, but will last for some time. Under this presumption, the paper presents three scenarios for the future trajectory of GVC in East Asia.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44246106","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-31DOI: 10.11644/kiep.eaer.2020.24.1.372
Seungmoon Choi, Jaebum Lee
Five diffusion models are estimated using three different foreign exchange rates to find an appropriate model for each. Daily spot exchange rates expressed as the prices of 1 euro, 1 British pound and 100 Japanese yen in US dollars, respectively denoted by USD/EUR, USD/GBP, and USD/100JPY, are used. The maximum likelihood estimation method is implemented after deriving an approximate log-transition density function (log-TDF) of the diffusion processes because the true log-TDF is unknown. Of the five models, the most general model is the best fit for the USD/GBP, and USD/100JPY exchange rates, but it is not the case for the case of USD/EUR. Although we could not find any evidence of the mean-reverting property for the USD/EUR exchange rate, the USD/GBP, and USD/ 100JPY exchange rates show the mean-reversion behavior. Interestingly, the volatility function of the USD/EUR exchange rate is increasing in the exchange rate while the volatility functions of the USD/GBP and USD/100Yen exchange rates have a U-shape. Our results reveal that more care has to be taken when determining a diffusion model for the exchange rate. The results also imply that we may have to use a more general diffusion model than those proposed in the literature when developing economic theories for the behavior of the exchange rate and pricing foreign currency options or derivatives.
{"title":"Maximum Likelihood Estimation of Continuous-time Diffusion Models for Exchange Rates","authors":"Seungmoon Choi, Jaebum Lee","doi":"10.11644/kiep.eaer.2020.24.1.372","DOIUrl":"https://doi.org/10.11644/kiep.eaer.2020.24.1.372","url":null,"abstract":"Five diffusion models are estimated using three different foreign exchange rates to find an appropriate model for each. Daily spot exchange rates expressed as the prices of 1 euro, 1 British pound and 100 Japanese yen in US dollars, respectively denoted by USD/EUR, USD/GBP, and USD/100JPY, are used. The maximum likelihood estimation method is implemented after deriving an approximate log-transition density function (log-TDF) of the diffusion processes because the true log-TDF is unknown. Of the five models, the most general model is the best fit for the USD/GBP, and USD/100JPY exchange rates, but it is not the case for the case of USD/EUR. Although we could not find any evidence of the mean-reverting property for the USD/EUR exchange rate, the USD/GBP, and USD/ 100JPY exchange rates show the mean-reversion behavior. Interestingly, the volatility function of the USD/EUR exchange rate is increasing in the exchange rate while the volatility functions of the USD/GBP and USD/100Yen exchange rates have a U-shape. Our results reveal that more care has to be taken when determining a diffusion model for the exchange rate. The results also imply that we may have to use a more general diffusion model than those proposed in the literature when developing economic theories for the behavior of the exchange rate and pricing foreign currency options or derivatives.","PeriodicalId":41122,"journal":{"name":"East Asian Economic Review","volume":null,"pages":null},"PeriodicalIF":0.8,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138516888","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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