Relationship between International Reserves and FX Rate Movements
1
Institute of Economics and International Trade, Pusan National University, Busan 46241, Korea
2
Department of Economics, Pusan National University, Busan 46241, Korea
*
Authors to whom correspondence should be addressed.
Sustainability 2020, 12(17), 6961; https://doi.org/10.3390/su12176961
Received: 29 July 2020 / Revised: 9 August 2020 / Accepted: 13 August 2020 / Published: 26 August 2020
(This article belongs to the Special Issue Application of Quantitative Methods in Modelling Sustainability in Economics and Finance)
This paper investigates the relationship between international reserves changes and foreign exchange rate movements for five Far Eastern countries (China, Japan, Taiwan, Hong Kong, and Korea) from January 1997 to May 2020. We use the quantile Granger causality test and the quantile autoregressive model to capture the monetary authorities’ motivations for intervention. The primary results of this study are as follows. First, in China and Hong Kong, we capture the mercantilists’ motive of accumulating their international reserves for the purpose of responding to the appreciation of currencies. Relatively speaking, the monetary authorities’ motivation for precautionary stabilizing their currencies is high in Korea and Japan. Second, we identify the asymmetric causal relationship between the variables. Considering the causal relationship with significant regression coefficients, these characteristics are found to be more evident in all countries. Last, we confirm the properties of the quantile- and tail-dependent relationship between the variables. In particular, Korea has a relatively stronger tail-dependence than other countries. That is, the causal relationship between the Korean foreign exchange reserves and the exchange rate is stronger at the rapid fluctuations of the variables, and this relationship is weakened at the moderate fluctuations of them.
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Keywords:
exchange rate; international reserves; intervention; quantile analysis
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MDPI and ACS Style
Lee, Y.; Yoon, S.-M. Relationship between International Reserves and FX Rate Movements. Sustainability 2020, 12, 6961. https://doi.org/10.3390/su12176961
AMA Style
Lee Y, Yoon S-M. Relationship between International Reserves and FX Rate Movements. Sustainability. 2020; 12(17):6961. https://doi.org/10.3390/su12176961
Chicago/Turabian StyleLee, Yeonjeong, and Seong-Min Yoon. 2020. "Relationship between International Reserves and FX Rate Movements" Sustainability 12, no. 17: 6961. https://doi.org/10.3390/su12176961
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