Total views : 238
Behavioral Economic View: The Episode of Won/USDollar Exchange Rate during the Crisis
Background/Objectives: This paper is motivated by recent evidence that the relation between Korean Won-US Dollar exchange rate and US federal funds rate is time-varying unlike conventional belief on the relation. Methods/Statistical Analysis: We employ the rolling window approach to figure out the influence of the crisis on the relation between the Won/ US-Dollar exchange rate and the US interest rate. The rolling window approach is used in time series analysis especially when the available sample period is short. This approach can be applied in order to check the predictive performance using a finite number of windows within a considered time span. Findings: The evidences resulting from the rolling window approach show that the Won/US-Dollar exchange rate and the US interest rate appear to be negatively correlated in some periods and positively correlated in others. Those time-varying patterns in the relation between exchange rate and interest rate are difficult to be explained from the traditional view of uncovered interest parity. On the other hand, behavioral macroeconomic perspectives provide various explanations for theoretically unconventional finding in the context of rational expectation formation. Application/Improvements: Our empirical observation remains with the conjecture that investors’ fear near the crisis may lead to some anomaly. The latter hypothesis should be further studied by the behavioral macroeconomic view.
Behavioral Economic View, Exchange Rate, Expectation, Interest Rate, Rolling-Window Approach
- Bondt DW. The psychology of world equity markets, Edward Elgar Press; 2005. p. 1–312.
- Bondt DW. Behavioral finance: quo vadis? European Financial Management Association; 2008.
- McKenzie D. An engine, not a camera: how financial models share markets. MIT Press; 2006. p. 392.
- Montier J. Behavioral finance: insights into irrational minds and markets. John Wiley press; 2006. p. 1–76.
- Shefrin H. Beyond greed and fear: understanding behavioral finance and the psychology of investing. Oxford Press; 2002.
- Shiller R. Irrational exuberance. Princeton University Press; 2000.
- Arkelof GE. Behavioral macroeconomics and macroeconomic behavior. American Economic Review. 2002 Jun; 92(3):411–33.
- Lucas RJ. Econometric policy evaluation: A critique. The Phillips curve and labor markets. Brunner K, Meltzer A, editor. Elsevier: United States; 1976. p. 19–46.
- Albulescu CT, Goyeau D. Estimation of equilibrium exchange rate in CEECs: a rolling window approach. Economics Bulletin. 2011; 31(2):1212–22.
- Nyakabawo W, Miller SM, Balcilar M, Das S, Guptaa R.Temporal causality between house prices and output in the US: a bootstrap rolling-window approach. The North American Journal of Economics and Finance; 2015. p. 55– 73.
- Lee S. A design of clinical information model to improve self-care activities in participants with stroke. Indian Journal of Science and Technology. 2015 Aug; 8(18):1–6. DOI: 10.17485/ijst/2015/v8i18/77149.
- Abarna R, Pradeepa S. A hybrid approach for extracting web information. Indian Journal of Science and Technology.2015 Aug; 8(17):1–6. DOI: 10.17485/ijst/2015/v8i17/61595.
- Kang NG, Park MW, Yang MS, Choi KN, Kim TH, Joo WK, Kwon OS. A development of service model for mapping the ecology of scientific research national science and technology information service. Indian Journal of Science and Technology. 2015 Jan; 8(1):121–30. DOI: 10.17485/ ijst/2015/v8iS1/59368.
- Sheikhpour R, Modiri N. A best practice approach for integration of ITIL and ISO/IEC 27001 services for information security management. Indian Journal of Science and Technology.2012 Feb; 5(1):2170–6. DOI: 10.17485/ijst/2012/ v5i2/30359.
- Sathyapriya U. Revealing hidden profile information and ranking job seekers on big data. Indian Journal of Science and Technology. 2016 May; 9(19):1–6. DOI: 10.17485/ ijst/2016/v9i19/93866.
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.