Role of Japan-US relative GDP and broad money supply in determining the yen-dollar exchange rate. (1st December 2005)

• Record Type: Journal Article
• Authors: Rahman, Matiur; Balic, Mihajlo; Swindle, Charles B.
• Is Part Of: Global business & economics review. Volume 7:Number 4(2005)
• Page Start: 311
• Page End: 323
• Publication Date: 2005-12-01
• Subjects: yen-dollar -- exchange rate -- relative GDP -- broad money supply -- stationarity -- cointegration -- granger causality -- Japan -- USA -- United States -- gross domestic product -- Japanese economy; Economics -- Periodicals; International economic relations -- Periodicals; 330.5
• Languages: English
• ISSNs: 1097-4954

Abstract

This paper analyses the role of relative GDP and broad money supply (M2) in the determination of the yen-dollar exchange rate. The sample period spans from the first quarter of 1988 to the second quarter of 2004. Standard cointegration procedures are applied. No clear evidence of a long-run equilibrium relationship exists among the variables. The estimates of the VAR model reveal short run causal flows from Japan-US relative GDP and relative broad money supply to the yen-dollar exchange rate with interactive feedbacks. The effects of the relative GDP on the yen-dollar exchange rate have no definitive patterns. The effects of the relative broad money supply are counterintuitive during this turbulent period of the Japanese economy.