A Study on Won/Dollar Real Effective Exchange Rate for 1990s

Abstract

It is argued that the Korean Won had been overvalued before its currency crisis in 1997. This paper assesses whether Korea experienced real appreciation in the 1990s. To do this, it estimates real effective exchange rates using 16 trade partner’s trade weights and monthly data. According to the result from estimation, Korean Won had been overvalued about 10% before crisis and had been undervalued after crisis. Overvaluation of won is attributed to huge capital inflows impact through capital market liberalization even with large current deficits.

Keywords

• Exchange Rate
• Won
• Dollar
• Financial Crisis