THREE ALTERNATIVE HYPOTHESES ON THE YEN-DOLLAR EXCHANGE RATE OVER THE LAST 30 YEARS

Yuzo Honda () and Hitoshi Inoue ()
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Yuzo Honda: Department of Informatics, Kansai University
Hitoshi Inoue: Faculty of Economics, Sapporo Gakuin University

No 15-15, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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.

Keywords: Quasi Purchasing Power Parity; Uncovered Interest Rate Parity; Soros Chart; Monetary Policy; Vector Autoregression (search for similar items in EconPapers)
JEL-codes: E52 F31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-06
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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