计量经济学2--时间序列报告--美元兑换韩币的汇率分析(.docx

LESE408-002 Project3 2012-11-21 The Forecast and Analyses of Korea Won/Dollar Exchange rate Name:, ID: 2010140537, 2010140511IntroductionAs the No.1 trade partner of Korea, the exchange rate between two countries has a tremendously significant meaning in bilateral trade, which effects and reflects a lot on the situation of Korea economy. From pegged rate to the floating system, the Korea exchange experiences several steps with different patterns. The report targets to find out the characteristics of won exchange rate, and make an appropriate forecast by current sample up to 2020 with less interruption of sudden change.Content;Part.1- Overview of Nominal Korea versus US dollars (Page1-2)Part.2- Estimation of Nominal Exchange rate (Page2-4) a. Find out the Break point b. Factors and Characteristics of Korea Exchange Rate can see from the Break Shock PeriodPart.3- Forecasting of the Future (Page 5)Part.4- Reference 1.Overeviwe of Nominal Korea Exchange Rate versus US dollarsIn terms of the diagram of monthly won/dollar, the entire trend appears increasing pattern. This trend stabilized from 1970 to some points at 1980, afterward, slightly fluctuated, and abruptly skyrocketed in the moment, a period can be easily taken a guess, 1998, IFM crisis in Korea. After all up to now, the stable pattern has disappeared; it went up again at 2008 due to the credit crises and real estate bubble happened in US and other parts of the world.Go back to the Korea currency history, this kind of patterns follow up with the system transition. Since 1970, BOK (Bank of Korea) decides to peg the won to US dollars, and gave up the fixed exchange rate system after Breton Woods system collapsed around 1980. After Dec. 1997, the Korea won was able to float biases of supply demand(IMF 1998 p.491)(1). Plus global crises of 1998 and 2008, exchange rate moved in an extremely typical way, wave and abrupt increase and decrease. As the previous description of characteristics of exchange rate in different periods. It is tremendously important to know when should be the breakpoint, the greatest shock affecting the exchange rate with statistical evidence, the linkage of exchange rate with other factors in order to obtain a seasonal future skeleton.2. The Estimation of Korea won/US dollar Nominal Exchange Ratea. Find out the Break pointThe entire monthly sample is from 1970-2012 shows that no strong symptom of seasonality comes out. Whereas the correlation diagram indicates the slowly decay of ACF and sudden death on PACF on period 3. The criteria of picking up a good model here is defined as the model with smallest AIC with parsimony standard. Here, ARMA(1,2) could be the best selection. AR(1)AR(2)AR(3)AR(4)09.79.4819.3549.344MA (1)9.344XXXMA(2)9.3418XXXThe increasing trend is statistically significant, either each parts of ARMA as well. The regression explains almost 99% percent of data in both R square and adjust R square. DW has good preference to deal with autocorrelation problem. AR and MA inverted root are both stationary and invertible. In the first glance, we feel it is a pretty good model to do the forecast. However, actually, it is not. In the previous part, we mentioned about the three periods, 1970-1979, 1979-1997, after 1998 with different pattern. Thereby, it is really important to exclude some sudden structure change before the forecasting.Several tools of coefficient diagnose can be applied here. Firstly, Quandt test(diagram on the left) calls that there is a structure change around the period2, 1998! Either, the Chow point test, assuming 1998 Jan is the turning points has p-value less than 0.05. Therefore, we reject the null hypotheses, no structure change at the point. There are evidences to proof the change!(The OLS transferred recursive coefficient test provide in reference page, since it needs to large space to show.) In the Quandt test, the series of statistics peaks up around 1998 rather than other two periods also. Testing the change with time dummy based on periods before 1998, the obvious change appears statistical significantly. The structure trend part shows 0.1436 higher than before in 0.05% significance level.The new trend is 0.14+1.67, 1.81 after 1987, which implies more radical depreciation in the Korea currency. Thus it is better to cut the part before 1998 out of the model to do the forecast. However, the shock of crisis will not just effect only 1998. the MONTHLY data is used here. Hence, we need to find more precise break point based on monthly measurement. Unfortunately, according our own knowledge, it is hard to achieve this work. Hence, some advanced jobs, cointegration test(Table (2) done by experts has been referred. The whole period was split into two periods, the pre-crisis period and post crisis period. In the case of Korea won, the post-crisis period starts Nov.1 1997, when Korean won started to depreciate with great volatility.(2): Pacific-Basin Finance Journal 11(2003) 209-525). The test result shows that thepost crisis analyses can start from 1997.Nov1. The forecast will base on the sample after this time.b. Factors and Characteristics of Korea Exchange RateBefore go to the forecasting part, it is better to know some characteristics of won versus dollar exchange rate. In the International Finance course, real exchange rate, export, price index, interest rate are generally discussed. Thereby, some elements related exchange rate will be estimated as follows. To prevent the spurious regression, all data has been smoothed before the estimation. The interest rate and export previously were in the model, however; they are not statistically significant.1) 同調性 Since the nominal exchange rate derives from PPP (purchasing power parity: Pk/Pus) and real exchange rate is also the nominal exchange times PPP, sometimes they show the same moving pattern (). In the short run, won against dollar s rate shows almost one to one relationship. which is 0.98% change in real rate has corresponded to 1% change on nominal rate. This shows clear in short run due to the price stickiness. However, the PPP and nominal exist time lag. This can be taken out by the recursive coefficient diagram.when 1998 shocks came, second coefficient, real exchange rate response immediately. However, the price(green arrow) does not; it moves flatly without external change all the time. Whereas, in its leg value does response the shock. This can prove the case of price stickiness exists in the Korea exchange rate market. 2) Inflation Problem.In the historical data, either the logarithm coefficient of Korean price over US price, shows the inflation rate went to a new high step after crises. Besides, the government stick on the expansionary monetary to solve the crisis and recover the economic. The drawback appears with high price level, inflation problem. Centre Bank expand money supply in market to stimulate the investment. Thereby, interest rate goes down. More investment and consumption booming the economy leads the high price and depreciation of the currency. Recently, Korean government works extremely hard on this issue and try to restrict it.(Change shows in two diagrams: red=1998, green=2008). At the same time, the quick recovery during the crises reflecting in exchange rate implies the high efficiency of government guideline for encountering crises. 3. Forecasting of the FuturePreviously, the post crisis period initial point, 1997. Nov. is mentioned in the coitegration test. Hence this is the new point of our sample for forecasting.The forecasting result indicates an astonishing increasing trend, which might overestimate the real data. The same moving direction of real and nominal exchange range still reveals in the forecasting. However, personally, in my perspective, the increasing trend sounds reasonable unless unexpected shocks happen in the future, yet how much the marginal change rate is a typical hard point to be defined. Why is the increasing trend reasonable? Some thoughts can be shown as follows;1) Expansionary Monetary policy = Low Interest rate;In the floating exchange rate, monetary is a strong power to control the economy. In terms of past trend and current action, Korean government tries to tie the interest rate in a really low level combine with appropriate monetary policy. Last year, the annual interest rate is 1.38 which is a tiny number kept in a small variation range in past few years. Even in our forecasting result, it increases a little bit after 2016, stilly it will stay in 2. This low rate will leave the exchange rate in a high level.2) Expectation Change (Self- fulfilling effect)In the international finance market, e