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

Taeyoon Sung, Danbee Park and Ki Young Park

Emerging Markets Finance and Trade, 2014, vol. 50, issue S6, 138-157

Abstract: 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.

Date: 2014
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DOI: 10.1080/1540496X.2014.1013854

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