Japanese Effective Exchange Rates and Determinants: Prices, Real Interest Rates, and Actual and Optimal Current Accounts
June 1, 1998
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Summary
This paper empirically analyzes Japanese long-run exchange rates from several perspectives. Several exchange rate models are considered, including the purchasing power parity, the real interest differential model, and the hybrid models à la Hooper and Morton (1982). A notable feature of the latter models is that the current accounts are introduced as determinants of the exchange rates; one type of hybrid model uses the actual current account, and the other the optimal current account, which is calculated using the present value model suggested by Campbell and Shiller (1988). The paper finds that the long-run specification is sensitive to the specification of the model.
Subject: Balance of payments, Current account, Exchange rates, Financial services, Foreign exchange, Purchasing power parity, Real exchange rates, Real interest rates
Keywords: co-integration, Current account, current account deterioration, exchange rate control, exchange rate dynamics, exchange rate fluctuation, exchange rate movement, Exchange rates, Long-run exchange rates, long-run rate, nominal exchange rate movement, optimal current account, Purchasing power parity, Real exchange rates, real interest rate differential, Real interest rates, time series, utility function, WP
Pages:
33
Volume:
1998
DOI:
Issue:
086
Series:
Working Paper No. 1998/086
Stock No:
WPIEA0861998
ISBN:
9781451850857
ISSN:
1018-5941
