115,278 research outputs found
Are Re-Assessing the Evidence of an Emerging Yen Block in North and Southeast Asia
No full textUsing weekly observations on 9 Asian currencies from November 1976 to December 2003, we re-examine the evidence of an emerging yen block in North and Southeast Asia. In contrast to previous research that assumes instantaneous adjustment of exchange rates by the region’s Central Banks to variations in the world’s main global currencies, we use a dynamic general-to-specific Newey-West estimation strategy that allows gradual adjustment and calculation of both short and long run equilibrium responses. We find that there is no de facto yen block, but although the US dollar remains dominant throughout the region, the yen’s influence is rising amongst a subset of the currencies, particularly since the Asian crisis of the late 1990s. Classification-Exchange rate systems, yen block
The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy
No full textThis 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.Japan, Monetary Policy Reaction Function, Bank of Japan, Interest Rate Rules, Exchange Rates, Taylor Rule, GMM.
The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy
No full textThis 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. --Japan,Monetary Policy Reaction Function,Bank of Japan,Interest Rate Rules,Exchange Rates,Taylor Rule,GMM
Intraday Yen/Dollar Exchange Rate Movements: News or Noise?
No full textIntraday movements in the yen/dollar rate are examined over the 1980-86 period using opening and closing quotes in the New York and Tokyo markets. The results indicate that random-walk behavior is violated about half of the time in various subsamples. However, the economic significance of departures from the random-walk model diminishes over time. Large jumps in the exchange rate also are examined, and some evidence on subsequent mean reversion is presented. Finally, the response of Japanese and U.S. stock prices suggests that intraday yen/dollar rate movements do contain at least some relevant information.
The Yen and Its East Asian Neighbors, 1980-1995: Cooperation or Competition?
No full textBy looking at how an East Asian currency moves when the yen fluctuates sharply against the US dollar, we sometimes find that the reaction has been much more significant than would be suggested by the econometric estimates of the weight of the yen in nominal exchange rate determination. Moreover, the Korean won and the Malaysian ringgit have tended to move more closely with a depreciating yen, suggesting the countries' emphasis on export promotion. The Singapore dollar, on the other hand, has tended to move more closely with an appreciating yen, underscoring the importance attached to price stability. The paper concludes that, given the trend appreciation of the yen during the recent past, emphasis on price stability has contributed more to monetary cooperation in Asia than emphasis on export promotion.
The Yen Real Exchange Rate May Be Stationary after All: Evidence from Nonlinear Unit-Root Tests
No full textThe empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. The yen real exchange rate behavior, as compared to other major currencies, has most stubornly challenged the PPP hypothesis and deepened this puzzle. This paper contributes to this discussion by providing new evidence on the stationarity of bilateral yen real exchange rates. We employ a non-linear version of the Augmented Dickey-Fuller test, based on an exponentially smooth-transition autogregressive model (ESTAR) that enhances the power of the tests against mean-reverting nonlinear alternative hypotheses. Our results suggest that the bilateral yen real exchange rates against the other G7 and Asian currencies were mean reverting during the post-Bretton Woods era. Thus, the real yen behavior may not be so different after all but simply perceived to be so due to the use of a restrictive alternative hypothesis in previous tests.PPP, Yen, Real exchange rates, Nonlinear models, ESTAR models
Dynamic equilibrium correction modelling of yen Eurobond credit spreads
No full textUnderstanding the long term relationship between the yields of risky and riskless bonds is a critical task for portfolio managers and policy makers. This study specifies an equilibrium correction model of the credit spreads between Japanese Government bonds (JGBs) and Japanese yen Eurobonds with high quality credit ratings. The empirical results indicate that the corporate bond yields are cointegrated with the otherwise equivalent JGB yields, with the spread defining the cointegration relation. In addition the results indicate that the equilibrium correction term is highly statistically significant in modelling credit spread changes. Another important factor is the risk-free interest rate with the negative sign, while there is little evidence of the contribution of the asset return to the behaviour of spreads.
Is Japan Creating a Yen Bloc in East Asia and the Pacific?
No full textThis paper reaches seven conclusions regarding the Yen Bloc that Japan is reputed to be forming in Pacific Asia. (1) Gravity-model estimates of bilateral trade show that the level of trade in East Asia is biased intra-regionally, as it is within the European Community and within the Western Hemisphere, to a greater extent than can be explained naturally by distance. One might call these three regions 'super-natural' blocs, in contrast to Krugman's "natural" trade blocs. (2) There is no evidence of a special Japan effect. (3) Once one properly accounts for rapid growth in Asia, the statistics do not bear out a trend toward intra-regional bias of trade flows. (4) The world's strongest trade grouping is the one that includes the U.S. and Canada with the Asian/Pacific countries, i.e., APEC. (5) There is a bit more evidence of rising Japanese influence in East Asia's financial markets. Tokyo appears to have acquired significant influence over interest rates in a few Asian countries, though overall its influence is as yet no greater than that of New York. (6) Some of Japan's financial and monetary influence takes place through a growing role for the yen, at the expense of the dollar, The yen has become relatively more important in exchange rate policies and invoicing of trade and finance in the region. (7) But this trend is less the outcome of Japanese policy-makers' wishes, than of pressure from the U.S. government to internationalize the yen.
Should small open economies in East Asia put all their eggs in one basket: the role of balance sheet effects
No full textYen-dollar fluctuations increase macroeconomic instability in small economies in East Asia. I investigate the choice of an exchange rate regime for these countries so as to minimize the adverse effects of this volatility. I build a sticky-price dynamic model of a small economy whose trade is invoiced in dollar and yen. First, I show the conditions under which pegging to a tradeweighted basket of the two currencies is the optimal policy for the small economy. Then, I introduce net worth constraints and unhedged dollar borrowing which pull the optimal policy away toward putting a much greater weight on the dollar.East Asia, optimal basket pegs, balance sheet effects, exchange rate regimes
Short-term and Long-Term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data
No full textThree surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were willing to accept a lower expected return on dollar assets. At short-term horizons expectations exhibit bandwagon effects, while at longer-term horizons they show the reverse. A 10 percent yen appreciation generates the expectation of a further appreciation of 2.4 percent over the following week, for example, but a depreciation of 3.4 percent over the following year. At any horizon, investors would do better to reduce the absolute magnitude of expected depreciation. The true spot rate process behaves more like a random walk.
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