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News and the Dollar/Yen Exchange Rate, 1931-1933: The End of the Gold Standard, Imperialism, and the Great Depression

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  • Takatoshi Ito
  • Kunio Okina
  • Juro Teranishi

Abstract

According to the efficient market hypothesis, news in Tokyo is responsible for the exchange rate changes during the Tokyo market hours, while the U.S. news is responsible for changes in the New York hours. The intra-daily dynamics of the $/yen exchange rate from December 1931 to November 1933 is analyzed. Japan's decision to go off gold in December 1931 depreciated yen by 30% in a month, mostly in the Tokyo market. During 1932, the yen depreciated another 30%, mainly due to Japan's aggression in China and resulting diplomatic isolation. In 1933, the yen appreciated against the dollar, mainly in the New York market, due to the U.S. decision to go off gold. However, exchange rate volatility and its sensitivity to news declined over the two year period, because of increasing capital controls. Changes in the interest rate differential was found insignificant for the changes in the exchange rate. Political regime changes, such as a decision to go off gold, most influenced the exchange rate for the period considered. There were no policy decisions by Japan to cause yen depreciation to promote export and limit import in 1931-33.

Suggested Citation

  • Takatoshi Ito & Kunio Okina & Juro Teranishi, 1988. "News and the Dollar/Yen Exchange Rate, 1931-1933: The End of the Gold Standard, Imperialism, and the Great Depression," NBER Working Papers 2683, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2683
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    1. Ito, Takatoshi & Roley, V. Vance, 1987. "News from the U.S. and Japan : Which moves the yen/dollar exchange rate?," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 255-277, March.
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    3. Brunner, Karl & Meltzer, Allan H., 1979. "Policies for employment, prices, and exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 1-7, January.
    4. Ito, Takatoshi, 1987. "The intradaily exchange rate dynamics and monetary policies after the group of five agreement," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 275-298, September.
    5. Ito, Takatoshi, 1988. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 296-305, May.
    6. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
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    Cited by:

    1. Takatoshi Ito, 2013. "Great Inflation and Central Bank Independence in Japan," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 357-387, National Bureau of Economic Research, Inc.
    2. Masahiro Inoguchi, 2007. "Influence of ADB Bond Issues and US Bonds on Asian Government Bonds," Asian Economic Journal, East Asian Economic Association, vol. 21(4), pages 387-404, December.

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