Yuan revaluation and its implications

Abstract

This study analyses the impacts of economic activity and exchange-rate movement and its volatility on exports and imports between Korea and China. Using monthly data from April 1994 to December 2007, Error-Correction Models (ECMs) are specified to estimate the cumulative effects of determinants for export and import demand. According to the empirical results, the depreciation of exchange rate would stimulate the export growth. In addition, it would be desirable to stabilize exchange rate in order to boost trade flows.

Keywords:

• exchange rate
• volatility
• error-correction model
• trade

JEL Classification:

• C22
• F19
• F31

Notes

Note: MASD, moving average standard deviation; GARCH, generalized autoregressive conditional heteroscedasticity.

¹The estimation results are available upon request.

²The critical value of the Student's t-distribution at the 5% level is 1.645 for a one-tailed test. In this study, the Durbin h-tests are not applicable since one of the terms in the test statistic is calculated as more than 1.