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Exchange rate volatility and domestic consumption: Evidence from Japan

Mohsen Bahmani-Oskooee () and Dan Xi

Economic Systems, 2012, vol. 36, issue 2, 326-335

Abstract: In 1952, Alexander provided an argument that since inflationary effects of depreciation could shift income from workers to producers it could lead to a decline in aggregate domestic consumption. This was based on the assumption that wages do not adjust fully to inflation and labor has a high MPC relative to that of the producers. In this paper, we argue that in addition to the exchange rate itself, exchange rate uncertainty could also affect domestic consumption. We demonstrate our conjecture by using quarterly data from Japan and a bounds testing approach that distinguishes the short run from the long run.

Keywords: Aggregate consumption; Exchange rate uncertainty; Japan (search for similar items in EconPapers)
JEL-codes: E21 F31 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:eee:ecosys:v:36:y:2012:i:2:p:326-335