Fluctuation of Foreign Exchange Rates and Competitiveness of Price

Abstract

By calculating the deviation of exchange rates from the long-run equilibrium exchange rates which maintain the price competitiveness of Korean goods in the world market, we find that the greater the imbalance in current account has become, the larger the gap between the two rates. While undervalued Korean won in the 1980s did harm on the Korean economy, the rapid appreciation in the 1990s along with the liberalization of capital market is also expected to deteriorate the current account deflcuts.