Exchange Rate Transmission through Multinational Firms: Evidence from Japan

Ryan Kim, Bin Ni, Hyunseung Oh and Choongryul Yang

No 1446, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study an income-account channel of exchange-rate transmission using matched data on Japanese multinational parents and their foreign affiliates. During the sharp yen depreciation of 2021–22, we find that (i) foreign affiliates with greater exchange-rate exposure expanded their activity and generated more profits, with larger payments to their Japanese parents, and (ii) more exposed parents increased their average wages and shifted employment toward commercial branches and offices involved in sales, purchasing, and related business functions, with offsetting declines in other employment. A multinational firm model in which scarce parent-side support inputs are allocated between domestic operations and foreign affiliates rationalizes these findings. To study the aggregate implications, we embed this mechanism in a two-country general-equilibrium model with trade and multinational production. The model shows that moving foreign-market activity from exports to affiliate production reduces the domestic real GDP response to depreciation and shifts more of the external adjustment from trade and toward income earned abroad. Depreciation therefore need not generate a large expansion in domestic production.

Keywords: exchange rates; multinational firms; current account; Japan (search for similar items in EconPapers)
JEL-codes: F23 F31 F32 F41 (search for similar items in EconPapers)
Pages: 102 p.
Date: 2026-09-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/ifdp/files/ifdp1446.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:103753

DOI: 10.17016/IFDP.2026.1446

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().