A Study on the Currency Safety Before and After the Sub-Prime Crisis

Kim, Kyu Hyong

Korean Journal of Financial Studies 2009;38(1):107-136.
Published online March 31, 2009.

Kyu Hyong Kim

서브프라임사태 이전과 이후의 통화안전성의 변화에 관한 연구

김규형

Abstract

With the advent of the sub prime crisis, we see the flight to quality in the foreign exchange market. This study examines how the capital flight is reflected in the characteristics and changing patterns of the asymmetric volatility in the won, the yen, the yuan, the dollar and the euro. GJR-GARCH(1, 1)-M model shows that the won has negative asymmetric volatility, while the yen has positive asymmetric volatility after the sub prime crisis. From this finding we can infer that the yen is a safety currency, while the won is not. the yuan and the dollar are safety currency against the won only. However the euro has shown to be stable against the yen, which is contradictory to the logic that relies on empirical results. In summary, the empirical results which contradict to the usual logic may require some other explanations which rely on something other than asymmetric volatility.

Key Words: 기축통화,비대칭적 변동성,안전통화효과,Asymmetric Volatility,Base Currency Effect,GARCH(1,1)-M,GJRGARCH(1,1)-M,Vehicle Currency