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Three Alternative Hypotheses On The Yen-Dollar Exchange Rate Over The Last 30 Years

Author

Listed:
  • Yuzo Honda

    (Department of Informatics, Kansai University)

  • Hitoshi Inoue

    (Faculty of Economics, Sapporo Gakuin University)

Abstract

We empirically investigate the dynamic nature of three alternative hypotheses on the foreign exchange rate between the Japanese yen and US dollar in a multivariate context, using data from April 1985 to October 2014. The three hypotheses are the uncovered interest rate parity hypothesis, the current account hypothesis, and the quasi purchasing power parity hypothesis. Each hypothesis has significant influence on the yen-dollar exchange rate. Furthermore, it takes two to three years for the yield spread between the yen and dollar to have its largest impact on the exchange rate. In addition, the effects of unexpected shocks to the exchange rate on the export price ratio and current account are long lasting.

Suggested Citation

  • Yuzo Honda & Hitoshi Inoue, 2015. "Three Alternative Hypotheses On The Yen-Dollar Exchange Rate Over The Last 30 Years," Discussion Papers in Economics and Business 15-15, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1515
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1515.pdf
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    References listed on IDEAS

    as
    1. Takagi, Shinji, 2015. "Conquering the Fear of Freedom: Japanese Exchange Rate Policy since 1945," OUP Catalogue, Oxford University Press, number 9780198714651.
    2. Takatoshi Ito, 2005. "The Exchange Rate In The Japanese Economy: The Past, Puzzles, And Prospects," The Japanese Economic Review, Japanese Economic Association, vol. 56(1), pages 1-38, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Yuzo Honda & Hitoshi Inoue, 2017. "The Effectiveness of the Negative Interest Rate Policy in Japan: An Early Assessment," Discussion Papers in Economics and Business 17-02, Osaka University, Graduate School of Economics.

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    More about this item

    Keywords

    Quasi Purchasing Power Parity; Uncovered Interest Rate Parity; Soros Chart; Monetary Policy; Vector Autoregression;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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