South Korean Won per Chinese Yuan

KRWCNY is the raw nominal bilateral exchange rate recorded without transformation, namely the price of one Chinese yuan expressed in Korean won, carried at the level at which it is quoted in the spot market. The quantity is a direct price quotation stating how many units of the domestic currency exchange for one unit of the foreign currency, the elemental object against which every parity benchmark is read.

What the nominal rate measures is fixed by a few doctrinal choices. The nominal rate is the variable anchored to the ratio of the two countries' purchasing-power levels (Cassel 1918). The absolute definition, under which the rate equals the ratio of national price levels, is distinct from the relative definition built from price indices and a base-period rate (Officer 1976). When a single traded good carries one common-currency price, the bilateral rate is the value that equates the two money prices, resting on the law of one price (Isard 1977). What counts as the price level is settled by the homogeneity postulate and the choice of index (Frenkel 1978), and the structural deviation arising from non-traded goods is added to this (Dornbusch 1987). Deflating the recorded nominal level by relative consumer prices yields the real exchange rate (Rogoff 1996).

The same bilateral quotation is the building block that effective-rate measurement aggregates. Trade-weighted averages are constructed from many such bilateral rates (Hirsch and Higgins 1970; Rhomberg 1976), and the multilateral measure is distinct from the bilateral one (Black 1976). A weighted-average index is assembled from these elemental quotes (Pauls 1987) and a broad index is derived from them (Loretan 2005), whereas KRED retains the elemental quote itself.

KRED applies no transformation to the series and enters the won price of the yuan at the level recorded each business day. It imposes no rescaling, deflation, smoothing, or annualization, and performs no weighting, aggregation, or filtering. The measurement basis is the market quotation convention by which the rate comes to exist, a direct price quote of the domestic currency per unit of foreign currency, the elemental input that sits at the centre of the absolute-versus-relative measurement distinction and the choice of price index (Officer 1976; Frenkel 1978).

Reading this raw level against a parity standard follows the purchasing-power framing (Cassel 1918) and the real-rate deflation (Rogoff 1996), neither of which KRED performs on the stored series.

The construction methodology that would aggregate this quote into a multilateral measure is documented across the literature, yet KRED records the single bilateral quotation prior to all of these steps. The trade-weighted averaging of bilateral rates was originated (Hirsch and Higgins 1970), and the weighting scheme and base period were shown to determine the resulting index (Rhomberg 1976). The multilateral weights are derived from a traded-goods model (Black 1976), the base-period, weighting, and deflator choices that govern an effective index are catalogued (Maciejewski 1983), and the demand-elasticity basis for the trade weights is supplied (Armington 1969). Such bilateral quotes are aggregated into a currency index through weighted-average and geometric-mean methods (Pauls 1987; Loretan 2005), and the third-market weighting and re-weighting procedures are set out (Turner and Van 't dack 1993; Zanello and Desruelle 1997; Bayoumi, Lee, and Jayanthi 2006; Klau and Fung 2006).

Economically the won price of the yuan is read against purchasing-power parity. Under this benchmark the nominal rate gravitates toward the ratio of national price levels, into which the anchor of purchasing-power parity was introduced (Cassel 1918). The absolute and relative definitions and the homogeneity postulate that discipline this reading vary with what is taken as the price level (Officer 1976; Frenkel 1978).

Departures from parity are the reference against which movements in this pair are interpreted. The law of one price supplies its arbitrage foundation (Isard 1977), and the persistent deviation from parity with slow mean reversion was formalized as a puzzle (Rogoff 1996). The structural Balassa-Samuelson channel, through which productivity differences shift the equilibrium real rate away from simple parity, is added, and it weighs heavily in long-horizon comparisons between two economies that have occupied different stages of industrial development (Dornbusch 1987).

As an indicator of external competitiveness the bilateral quote is the input aggregated into effective measures of a currency's average value (Hirsch and Higgins 1970; Rhomberg 1976). This input is interpreted through a world model of traded goods (Black 1976) and connected to import demand elasticities by place of production (Armington 1969). The choice of deflator and trade weights translates a movement in this rate into a competitiveness signal, the economic content that a single bilateral level both carries and limits (Maciejewski 1983; Bayoumi, Lee, and Jayanthi 2006).

In financial use the recorded won-per-yuan level is the price at which won-denominated claims are converted into yuan claims and the settlement reference for cross-border positions, so that a holder of yuan assets marks them to won at exactly this quote. The CPI-deflated level becomes a real-rate signal of over- or under-valuation (Rogoff 1996). The purchasing-power anchor and the absolute and relative definitions underpin the mean-reversion logic of currency-valuation and carry positioning (Cassel 1918; Officer 1976; Frenkel 1978).

The traded-goods arbitrage and the non-traded structural deviation bound how far the rate can stray, defining the risk in holding the currency exposure (Isard 1977; Dornbusch 1987).

The same bilateral quote is a constituent of the broad currency indices that gauge a currency's market value across counterparties (Pauls 1987; Loretan 2005). The weighting that converts many such quotes into a tradable competitiveness gauge is recorded (Turner and Van 't dack 1993; Bayoumi, Lee, and Jayanthi 2006; Klau and Fung 2006), and the multilateral-versus-bilateral distinction that is key when hedging a single pair against a basket is supplied (Black 1976).

On the 2,599 daily observations spanning 2016-01-04 to 2026-07-24, fit with a constant and trend, the unit-root battery agrees that the won-yuan exchange rate is integrated of order one. The augmented Dickey-Fuller test of Dickey and Fuller (1979), in the ARMA-consistent lag-augmented form of Said and Dickey (1984) and with lag length set as in Ng and Perron (2001), does not reject a unit root with p = 0.3058, the nonparametric Phillips and Perron (1988) test concurs with p = 0.3298, and the Kwiatkowski et al. (1992) stationarity test rejects its trend-stationary null at p < 0.01, so the verdict is an unambiguous I(1). The GLS-detrended power escalation of Elliott, Rothenberg, and Stock (1996) is reserved for ambiguous outcomes under the house protocol and is not required on this clean reading.

Because the level is integrated, the mean-shift and serial-correlation diagnostics are run on the first difference, the stationary object those procedures require, since a break search or a portmanteau on an integrated level would spuriously segment and read near-unit autocorrelations (Bai and Perron 1998; Perron 1989). The multiple-break procedure of Bai and Perron (1998), computed by the dynamic-programming algorithm of Bai and Perron (2003), finds no break in the mean of the differenced series, consistent with the parameter-instability inference of Andrews (1993). The Ljung and Box (1978) portmanteau statistic, refining the original Box and Pierce (1970) form, is computed on the first difference and rejects the white-noise null at lags 10 and 20, with Q = 28.25 and Q = 37.07 and p = 0.0016 and p = 0.0115, and the automatic portmanteau test of Escanciano and Lobato (2009) also detects residual dependence at the 5% level with a statistic of 3.97 at p = 0.0463.

The series is daily and has no low-integer seasonal period, so the seasonal-unit-root machinery of Hylleberg et al. (1990) and the Canova and Hansen (1995) seasonal-stationarity test are inapplicable and are deliberately not run, the degeneracy of the seasonal auxiliary regression at a daily period being the standard ground (Beaulieu and Miron 1992; Ghysels and Osborn 2001).