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Financial Sector and Aggregate Import Demand: A General Equilibrium Perspective with Japan Data

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  • Tuck Cheong Tang

    (Department of Economics, Faculty of Economics and Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia)

Abstract

This study explores the role of financial sector on import demand behaviour (the real sector) from general equilibrium perspective, which is based on the portfolio balance approach to capture financial market. Japan’s data support partially this hypothesis given noncointegration finding, while foreign interest rate is significant i.e. reduces Japan’s imports. Growth in foreign income is the most influential factor, and domestic economic growth both make more imports. However, the relative price of domestic goods, and domestic interest rate are insignificant. Japan’s monetary policy (interest rate) is inappropriate in altering the behaviour of imports in Japan, but fiscal policy that influences Japan’s economic growth.

Suggested Citation

  • Tuck Cheong Tang, 2018. "Financial Sector and Aggregate Import Demand: A General Equilibrium Perspective with Japan Data," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(2), pages 45-64.
    • Handle: RePEc:usm:journl:aamjaf01402_45-64
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    References listed on IDEAS

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    2. Tuck Cheong Tang, 2013. "A General Equilibrium Perspective of Aggregate Import Demand," Monash Economics Working Papers 06-13, Monash University, Department of Economics.
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    4. Dietrich K. Fausten, 1979. "The Humean Origin of the Contemporary Monetary Approach to the Balance of Payments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 655-673.
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