경제정책 불확실성과 원/달러 환율 변동성

This paper analyzes the effect of domestic economic policy uncertainty on the won/dollar exchange rate volatility using a GMM-IV model, and monthly data since January 2000. The result of this study suggests that domestic economic policy uncertainty increases the won/dollar exchange rate volatility. After examining the influence of other indicators, I find that the VIX index explains exchange rate volatility well in accordance with previous studies. On the other hand, there exists no statistically significant explanatory power for geopolitical risk or global trade policy uncertainty. Further, this paper also presents that the narrowing of the interest rate differential, the increase in the short-term external debt to reserves ratio, and the decrease in the ratio of capital inflows to nominal GDP are factors that increase the won/dollar exchange rate volatility. In addition, this paper investigates the impacts of category-specific economic policy uncertainty. There are differences in results depending on model selection, but foreign exchange policy uncertainty is commonly found to best explain the won/dollar exchange rate volatility. In contrast, trade policy uncertainty appear to have no significant impact on exchange rate volatility. According to this study, in order to stabilize the exchange rate, efforts should be pursued to strengthen the stability of the overall foreign exchange market, such as improving consistency and reliability in foreign exchange policy, alleviating the volatility of capital flows in the medium to long term, and properly managing short-term foreign currency debt and foreign exchange reserves.