Role of Japan-US relative GDP and broad money supply in determining the yen-dollar exchange rate
by Matiur Rahman, Mihajlo Balic, Charles B. Swindle
Global Business and Economics Review (GBER), Vol. 7, No. 4, 2005

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.

Online publication date: Wed, 30-Nov-2005

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