Reflection of IT Industry in the Real Exchange Rate

Abstract

Motivated by looking what would have been possible if Korea had pegged the Won to the price of her key export commodity, semiconductor, the relation between the real exchange rate and the DRAM real price is of great empirical interest in this paper. Naturally, not all the time over the period from 1991 to 2002, Korea will benefit from a peg to her export commodity price. Nonetheless, on the brink of the Asian currency crisis, peg to key export commodity price would help to recover the current account deficit and capital market sentiments when the decline of major export commodity price was combined with the strong U.S. dollar. Encouraged by these facts, this paper scrutinizes how much the real price of the DRAM, the greatest export item in Korea, has affected her real exchange rate through regressions and the VAR study. The DRAM real price shock is more responsible for driving the real exchange rate than the terms of trade shock.