Real Exchange Rate Fluctuations and the Business Cycle: Evidence From Japan

Eswar Prasad and Bankim Chadha

No 1996/132, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the relationship between the real exchange rate and the business cycle in Japan during the floating rate period. A structural vector autoregression is used to identify different types of macroeconomic shocks that determine fluctuations in aggregate output and the real exchange rate. Relative nominal and real demand shocks are found to be the main determinants of variation in real exchange rate changes, while relative output growth is driven primarily by supply shocks. Historical decompositions suggest that the sharp appreciations of the yen in 1993 and 1995 and its subsequent depreciation can be attributed primarily to relative nominal shocks.

Keywords: WP; exchange rate; supply shock; price level; business cycle; demand shock; Business cycle fluctuations; real effective exchange rate; structural vector autoregression; real exchange rate; critical value; aggregate price level; depreciated exchange rate; partner country CPI; business cycle dynamics; Real exchange rates; Exchange rates; Real effective exchange rates; Supply shocks; Business cycles; Global (search for similar items in EconPapers)
Pages: 34
Date: 1996-11-01
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Citations: View citations in EconPapers (9)

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Journal Article: Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan (1997)
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