South Korean Won per Euro

KRWEUR is the number of Korean won exchanging for one euro, namely the nominal bilateral spot exchange rate of the euro expressed in won, recorded as observed without any transformation as a raw data series. A bilateral nominal rate is the elemental quantity stating how many units of one national money exchange for a single unit of another. A rise in this level means the won is weaker against the euro, and a fall means it is stronger.

This elemental quantity is what purchasing-power-parity reasoning anchors to the ratio of national price levels, splitting into an absolute price-level-ratio definition and a relative price-index definition (Cassel 1918; Officer 1976). The single-good arbitrage principle beneath it is the law of one price under which a common-currency price is equated across locations, and the homogeneity postulate together with the choice of price index fixes how such a rate is conceived (Isard 1977; Frenkel 1978). The won price of the euro is the nominal counterpart of the consumer-price-deflated real rate and the object of an absolute and relative purchasing-power-parity scaffold set within the Ricardo-Harrod-Balassa-Samuelson structural wedge (Rogoff 1996; Dornbusch 1987).

This single bilateral rate is also the building block of the trade-weighted effective-rate indicators that average over many currencies (Hirsch and Higgins 1970). Such effective indicators are recomputed under alternative weighting schemes (Rhomberg 1976), grounded in a world model of traded goods (Black 1976), and aggregated by geometric mean (Pauls 1987; Loretan 2005). KRED keeps the won-per-euro observation disaggregated and untouched rather than folding it into any such composite.

KRED applies no transformation to the won-per-euro bilateral spot quotation and stores the daily value exactly as recorded, so the methodology is limited to the measurement basis by which such a price comes to exist. A nominal exchange rate is a market price for one money in terms of another, and in venues where the euro and the won are each most actively quoted against a common vehicle currency the won-per-euro level is read as a cross rate. Its internal consistency rests on law-of-one-price arbitrage (Isard 1977).

No rescaling, deflating, smoothing, or annualizing is performed on this series, and no weighting or averaging is imposed. This is precisely what distinguishes the raw bilateral series from the constructed aggregates whose construction machinery is documented by a named-author lineage.

Within these composite aggregates, trade-weighted averaging was first systematized (Hirsch and Higgins 1970), seven alternative weighting schemes were contrasted (Rhomberg 1976), and the weights were derived from a world model of traded goods (Black 1976). Origin-differentiated demand elasticities justify trade-elasticity weighting (Armington 1969). The base-period, weighting, and deflator choices that would enter a real effective transform were catalogued (Maciejewski 1983), third-market double-export weighting and the geometric-versus-arithmetic aggregation choice were set out (Turner and Van 't dack 1993), and the homogenization of multilateral weights was documented (Zanello and Desruelle 1997). Those weights were updated from bilateral trade (Loretan 2005; Bayoumi, Lee, and Jayanthi 2006) and described as a time-varying-weight geometric construction (Klau and Fung 2006). None of these transformations applies here because KRED records the elemental rate itself.

Even the choice between absolute and relative measurement is a transformation KRED declines to impose (Officer 1976; Frenkel 1978).

Economically the won price of the euro is read against the purchasing-power-parity benchmark under which the bilateral rate should track the ratio of national price levels (Cassel 1918). The absolute-versus-relative distinction and the price-index and homogeneity choices govern the comparison (Officer 1976; Frenkel 1978).

Persistent departures are the purchasing-power-parity puzzle, whose slow mean reversion bounds how informative the level is about competitiveness (Rogoff 1996). Part of any such wedge is attributed to the Ricardo-Harrod-Balassa-Samuelson productivity channel (Dornbusch 1987), and the underlying law of one price can be pushed only so far before traded-goods arbitrage breaks down (Isard 1977).

Because trade and relative-price effects operate through many partners at once, the bilateral won-euro rate enters effective-rate aggregation and alternative-weighting calculations (Hirsch and Higgins 1970; Rhomberg 1976). The weights themselves rest on a traded-goods general equilibrium (Black 1976), an origin-differentiated demand system (Armington 1969), a re-weighting from bilateral trade shares (Bayoumi, Lee, and Jayanthi 2006), and the base-period and deflator choices that determine an index's economic meaning (Maciejewski 1983). Retaining the raw bilateral level lets each of these readings be reconstructed without committing to one weighting convention.

In financial practice the won-per-euro spot rate is the price at which euro-denominated exposure converts to won and the reference for currency hedging, carry positioning, and cross-rate arbitrage. Cross-rate arbitrage enforces triangular law-of-one-price consistency across the won, the euro, and any common vehicle currency (Isard 1977).

The valuation anchor comes from purchasing-power parity and conditions every fair-value signal. Purchasing-power parity supplies the level benchmark (Cassel 1918), and the consumer-price-deflated real rate together with its slow-reverting deviation gives the medium-horizon over- and undervaluation frame (Rogoff 1996). The absolute-versus-relative distinction and the Balassa-Samuelson refinement complete it (Officer 1976; Frenkel 1978; Dornbusch 1987).

Portfolio and risk management spanning several currencies leans on trade-weighted index construction (Pauls 1987), broad and major-currency geometric-mean aggregation (Loretan 2005), multilateral weighting (Hirsch and Higgins 1970; Rhomberg 1976), bilateral-trade-share re-weighting (Bayoumi, Lee, and Jayanthi 2006), and the time-varying-weight geometric scheme (Klau and Fung 2006). Each of these treats a single bilateral rate such as the won-euro pair as the elementary input. Holding the untransformed quote lets a trading desk build any of these hedging baskets or valuation overlays directly.

On the 8,567 daily observations spanning 1994-04-11 to 2026-06-26, fit with a constant and trend, the unit-root battery agrees that the won-euro 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 = 0.0689, the nonparametric Phillips and Perron (1988) test concurs with p = 0.0808, 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 = 663.67 and Q = 807.35 and p = 0.000 and p = 0.000, and the automatic portmanteau test of Escanciano and Lobato (2009) does not detect further dependence with a statistic of 0.03 at p = 0.852.

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).