Modelling the real yen–dollar rate and inflation dynamics based on international parity conditions

Synne S. Almaas and Takamitsu Kurita

Journal of Asian Economics, 2019, vol. 61, issue C, 51-64

Abstract: This study aims to explore the dynamics of the real yen–dollar rate and inflation rates by analysing Japan–US monthly economic data in recent years. A real interest differential (RID) derived from international parity conditions plays a critical role in the empirical exploration. A multivariate analysis of the data reveals evidence which supports the RID hypothesis as a long-run economic relationship, distinct from the existing evidence in literature. The relationship also paves a way for the regime-switching analysis that explicitly allows for influences of the two countries’ monetary policies. The non-linear dynamic nature of the real yen–dollar rate is clarified in this analysis.

Keywords: Real yen–dollar rate; International parity conditions; Real interest differential; Cointegration; Regime-switching analysis (search for similar items in EconPapers)
JEL-codes: C32 C50 E31 F31 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:61:y:2019:i:c:p:51-64

DOI: 10.1016/j.asieco.2019.02.003

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