Effects of 8.11 exchange rate reform in China on Korean Won-Yuan Market

Abstract

Effects of 8.11 exchange rate reform in China on Korean Won-Yuan Market Pengfei Duan Dept.of Economics & Finance Graduate School of Hanyang University The exchange rate is an important economic variable that regulates a country's internal and external economic balance. Changes in the exchange rate not only affect the economic development of a country, but also have an impact on the economic activities of other countries. In recent years, the international status of the RMB is gradually increasing. More and more international trade is using the RMB as a settlement currency, and the RMB is also appearing more frequently in people's investment and asset allocation portfolios. Then, economic exchanges between China and South Korea are deepening, and China is now the largest trading partner of South Korea. Against this background, studying the impact of China's 8.11 exchange rate reform on exchange rate fluctuations in the Korean RMB-KRW market can be a positive guide for both our trade and offshore markets. This paper uses data related to the daily exchange rate of the Korean Won-Yuan market before and after China's 8.11 exchange rate reform. The results verify that there is a structural abrupt change in the time series of the above data from a quantitative point of view after the exchange rate reform. On this basis, unit root tests, Granger causality tests and impulse responses in the framework of VAR models are used to further investigate the interaction of the above exchange rates before and after the exchange rate reform and to conduct a comparative analysis of them. The results show that China's '8.11' exchange rate reform had a greater impact on the Won- Yuan market exchange rate, making the CPY more susceptible to the market's influence.