U.S. Dollar Effect on Currency Interdependence: Case Study of Korean Won Pubblico

Abstract

This study investigates how correlations between two trading currencies shift in response to changes in the U.S. Dollar value. Focusing on the Korean Won and the currencies of its 20 largest trading partners, this paper models their pairwise time-varying dependence from 2006 to 2024. The analysis is conducted using static canonical vine copula models, which are subsequently extended for dynamic analysis using an autoregressor, marginal distributions of monthly currency return, and change in USD. Our findings show that currency correlations are typically inflated by the USD, USD appreciation increases the correlation between two currencies, and currencies of more economically integrated countries tend to exhibit stronger dependencies during prolonged periods of dollar strength than those of less integrated economies. 

Table of Contents

1. Introduction............................................................................................................. 1

2. Literature Review...................................................................................................... 3

2.1 Monetary Policy Spillover and Exchange Rate Co-Movement ........................ 4

2.2 Asymmetric Dependence............................................................................ 5

2.3 Empirical Methods .................................................................................... 6 

3. Data........................................................................................................................ 7

4. Methodology............................................................................................................ 8

4.1 Marginal Estimations of Currency Returns.................................................. 11

4.2 Canonical Vine Copula.............................................................................. 12

4.3 Dynamic Copula ....................................................................................... 14

5. Results.................................................................................................................... 15

6. Conclusion ............................................................................................................. 27

7. Appendix................................................................................................................ 29 

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, General Economics, Finance
Parola chiave	Currency Interdependence Exchange Rate Spillover Korean Won U.S. Dollar
Committee Chair / Thesis Advisor	Vivian Zhanwei Yue, Emory University
Committee Members	Alexis Akira Toda, Emory University Jong H. Kim , Emory University Kelli Lanier, Emory University

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