Floating exchange rates and macroeconomic independence

Lian An, Yoonbai Kim and Yu You

International Review of Economics & Finance, 2016, vol. 42, issue C, 23-35

Abstract: In this paper, we evaluate macroeconomic independence during different time periods categorized by different exchange rate systems and degree of capital mobility. A cointegration VAR framework is developed to evaluate the performance of floating exchange rates in increasing macroeconomic independence in Japan vis-à-vis the U.S. Using this empirical framework, we test various hypotheses related to international transmission and the movement of interest rates and goods prices. Our results show that Japan's monetary independence has declined over time, but retains some degree of monetary autonomy due to the floating exchange rate system. In contrast, although capital controls in place prior to the 1980s do not enhance monetary independence, they do help to improve goods market independence.

Keywords: Macroeconomic independence; Monetary independence; Floating exchange rates; Cointegration (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:42:y:2016:i:c:p:23-35

DOI: 10.1016/j.iref.2015.10.041

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