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FX funding risks and exchange rate volatility? : Korea’s case

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Frame of Image t/ total asset Foreign bank branches Coefficient ST external debt(-1)/ total asset(-1) BankSpecific factor FX derivatives positions / total asset BIS capital adequacy ratio GDP growth(-1) Inflation(-1) ∆Log(exr)(-1) Domestic factor Exr volatility(-1) CA(-1)/GDP(-1) Reserve(-1)/GDP(-1) Incentive International factor Constant AR (1) <p-value> AR (2) <p-value> VIX 0.4424*** 0.3186*** -0.0740** -0.1482 -3.9555*** -0.1272* 0.1242*** -0.5967** 0.3312** 2.0640*** -0.3836*** 9.3058 -2.5596 0.6172 Robust St.err 0.0960 0.0558 0.0352 0.2078 0.7462 0.0750 0.0260 0.2313 0.1326 0.6774 0.0988 9.4283 <0.0105> <0.5371> Domestic banks Coefficient 0.6962*** 0.1110 -0.0431** 0.0128 -0.1493 0.0087 -0.0023 -0.0395 -0.0824 0.0004 0.0087 2.8430*** -2.0906 1.3315 Robust St.err 0.0611 0.0704 0.0208 0.0112 0.1077 0.0096 0.0023 0.0268 0.0977 0.0910 0.0171 1.0715 <0.0366> <0.1830>
Variable names ST external debt/ total asset (%) FX derivatives position/ Total asset (%) BIS capital adequacy ratio (%) GDP growth (%) Inflation (%) ∆Log(exr )(%) Exr volatility (%p) CA / GDP (%) Reserve / GDP (%) CIP deviation (%p) VIX
Explanation Banks’ short-term external debt denominated in foreign currency / Banks’ total asset Banks’ net derivatives position/ Banks’ total asset Banks’ risk weighted asset/ Banks’ capital Korea’s GDP growth rate CPI inflation rate Change of period average KRW/USD exchange rate Standard deviation of daily exchange rate change during the period Korea’s current account / GDP Foreign reserve /


Full Text
Title FX funding risks and exchange rate volatility?
Similar Titles
Sub Title

Korea’s case

Material Type Reports
Author(English)

Ree, Jack Joo K.; Yoon, Kyoungsoo; Park, Hail

Publisher

[Seoul]:The Bank of Korea

Date 2013-05
Series Title; No BOK Working Paper
Pages 40
Subject Country South Korea(Asia and Pacific)
Language Korean
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding The Bank of Korea; KDI School

Abstract

This paper examines how exchange rate volatility and Korean banks’ foreign exchange liquidity mismatches interacted with each other during the Global Financial Crisis, and whether the vulnerability stemming from this interaction has been reduced since then. Structural and cyclical changes after the crisis, including decreasing demand for currency hedges and the diversifying investor base for bonds, point to a possible weakening of the interaction mechanism; and we find evidences are strongly supportive of this.