Empirical Analysis of the Psychological Hypothesis on Exchange Rate Determination and Testing Its Forecastability: The Korean Experience

Hyun-Jae Rhee ()
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Hyun-Jae Rhee: Chongju University, Postal: Division of Economics and International Commerce, College of Economics and Business Administration, Chongju, 360-764, Korea

Journal of Economic Integration, 2002, vol. 17, 449-473

Abstract:

The role of psychological impact is examined by investigating the determination of exchange rates, especially the U.S. Dollar. It has been applied to the Korean economic crisis which occurred between January 1997 and June 1999. The basic idea is that psychological information can be used in generating rational expectation, and accordingly, it would induce exchange market clearance. While psychological hypothesis is weakly supported, results reveal that the U.S. Dollar can be determined by psychological impact. The ex-post simulation process also proves it. The understanding of psychological impact is necessary for the implementation of foreign exchange policies.

Keywords: Market Sentiment; Psychological Hypothesis; GARCH-M Model (search for similar items in EconPapers)
JEL-codes: C32 F41 (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0203

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