균형 원화환율의 추정과 평가

Estimation and Evaluation of Korea's Equilibrium Exchange Rate

There are various concepts and definitions with respect to the equilibrium exchange rate. Along with the reality that a variety of methodologies and econometric techniques are applied in empirical research, a comprehensive approach that reviews and analyzes the pros and cons of various models would seem to render more reliable results. From such point of view, this research first critically reviewed the theory of equilibrium exchange rate and evaluated previous studies, then estimated Korea's equilibrium exchange rate by applying three approaches, i) purchasing power parity method, ii) cointegration equation which explores the long-run equilibrium exchange rate relationship, and iii) macroeconomic model consisting of simultaneous equation for the period between the early 1980s and recent times. Based on the estimation results, the degree and duration of detachment between the actual and equilibrium exchange rates (exchange rate misalignment), and the effect of exchange rate on the national economy were comprehensively evaluated. Following are the main findings of this study. First, comparison of the estimated levels of equilibrium exchange rates between the three approaches, other than a large detachment between the periods before and after the currency crisis in 1997 showed that the estimated results of the three methods do not show any significant discrepancy for most of the sample periods. Therefore, it can be concluded that the level of equilibrium exchange rates estimated in this research is highly credible. Second, by determining whether the actual exchange rates immediately prior to the crisis were overvalued, it was found that the actual exchange rates began to fall below the equilibrium exchange rates of all three methods beginning in 1995 and overvaluation of \/US$ exchange rates continued until the second or third quarter of 1997. In particular, the overvaluation of \/US$ exchange rates was shown to be notably severe in 1996. Third, while the sudden increase of nominal exchange rates immediately after the crisis led to the actual exchange rates significantly exceeding the equilibrium exchange rates, the gap began to be mitigated in the second quarter of 1998, and the misalignment ratio of 2000 was significantly lower than the average of the past ten years. Fourth, comparison of the three methods used to estimate equilibrium exchange rates showed that the PPP model is useful in evaluating the long-run real purchasing power of Korean Won, while the error correction model assuming long-term equilibrium among the actual exchange rates and other related variables is useful in effectively explaining the short -tenn movements of exchange rates. Also the macroeconomic model consisting of the simultaneous equations is shown to be effective in explaining the overvaluation of exchange rates immediately prior to the crisis. Therefore, it is necessary to comprehensively consider the results of the three methods when operating an exchange rate policy. Finally, in respect of operating the exchange rate policy, since the actual exchange rate is largely affected by supply and demand in the foreign exchange market and expectations of market participants, it is quite common that in the short-run the actual exchange rate fluctuates around the equilibrium exchange rate determined by basic economic conditions. Therefore, it is necessary to overlook a reasonable level of gap between the actual and equilibrium exchange rates. However, as learned from the currency crisis, if the gap is severe and prolonged for a long period, the effect such detachment has on the national economy can be serious and thus appropriate countermeasure policies should be utilized to mitigate adverse effect exchange rate detachment may have on the real economic activities.