The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy

Gunther Schnabl and Christian Danne

No 290, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This paper studies the role of the yen/dollar exchange rate in the Bank of Japan?s monetary policy reaction function. In contrast to prior estimations of reaction functions based on the Taylor-rule, we allow for regime shifts by estimating rolling coefficients from January 1974 to March 1999. The results show a temporary impact of the exchange rate on monetary policy around 1978/79 and a persistently increasing impact of the yen/dollar exchange rate after 1986. The ris ing importance of the yen/dollar exchange rate for Japanese monetary policy is in line with increasing efforts to stabilize the yen/dollar exchange rate by foreign exchange intervention after March 1999, when the nominal interest rate reached the zero boundary.

Keywords: Japan; Monetary Policy Reaction Function; Bank of Japan; Interest Rate Rules; Exchange Rates; Taylor Rule; GMM (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 F41 (search for similar items in EconPapers)
Date: 2005
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Working Paper: The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:290

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