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Portfolio flows and the US dollar–yen exchange rate

Faek Menla Ali, Fabio Spagnolo and Nicola Spagnolo
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Fabio Spagnolo: Brunel University London

Empirical Economics, 2017, vol. 52, issue 1, 179-189

Abstract: Abstract This paper investigates the effects of portfolio flows on the US dollar–Japanese yen exchange rate changes over the period 1988:01–2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar–yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar–yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.

Keywords: Exchange rates; Portfolio flows; Regime-switching (search for similar items in EconPapers)
JEL-codes: F31 F32 G15 (search for similar items in EconPapers)
Date: 2017
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