Exchange Rate Risk Formation in An Import Demand Model: An Application to Korea

Rumi Masih ()
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Rumi Masih: Goldman Sachs Asset Management, Postal: 85 Broad Street New York NY 10004 USA, http://www2.goldmansachs.com/

Economia Internazionale / International Economics, 1998, vol. 51, issue 2, 239-258

Abstract: This paper attempts to develop and question the validity of an important demand model incorporating a proxy variable representing exchange rate risk. Given the scenario of a newly industrialising economy such as Korea where the scope of established forward exchange markets are limited, behavioural assumptions are made and qualified in order to permit one to concentrate on issues of modelling. Data are constructed and analysed paying particular respect to quality and the various prerequisites for modelling. Three hypotheses of risk formation are tested in two separate models of import demand, using three different proxy variables. It is discovered that for the same period under consideration, the hypothesis of static expectations faced by traders cannot be evidently rejected. JEL classification: F14, F17, 016

JEL-codes: F14 F17 O16 (search for similar items in EconPapers)
Date: 1998
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