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Monetary Approach for Determining Exchange Rates and Recent Monetary Policy of Japan

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  • Yutaka Kurihara
  • Akio Fukushima

Abstract

This article examines whether or not the monetary approach, or one of the main exchange rate determination theory models that consider economic fundamentals is suitable for determination of exchange rates for the Japanese yen against the US dollar. This monetary approach to exchange rate determination finds the point at which the available amount of money supply is equal to the demand to hold the money in the long run. This method has been used in the past.The monetary approach model for determination of exchange rates is appropriate for the case between Japan and the United States. However, when monetary base is used for estimation considering Japan’s recent monetary policy, this variable is not significant. Instead, other variables, namely, real incomes and prices for both countries impact the exchange rate. Also, the unconventional Japanese quantitative monetary policy is examined empirically and was found to affect the exchange rate for more than one year.

Suggested Citation

  • Yutaka Kurihara & Akio Fukushima, 2015. "Monetary Approach for Determining Exchange Rates and Recent Monetary Policy of Japan," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 4(1), pages 23-31.
    • Handle: RePEc:rss:jnljfe:v4i1p3
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    Cited by:

    1. Shimizu, Makoto, 2017. "Effect of net foreign assets on persistency of time-varying risk premium: Evidence from the Dollar-Yen exchange rate," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 255-265.

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