Exchange rate volatility and domestic consumption: Evidence from Japan
AbstractIn 1952, Alexander provided an argument that since inflationary effects of depreciation could shift income from workers to producers it could lead to a decline in aggregate domestic consumption. This was based on the assumption that wages do not adjust fully to inflation and labor has a high MPC relative to that of the producers. In this paper, we argue that in addition to the exchange rate itself, exchange rate uncertainty could also affect domestic consumption. We demonstrate our conjecture by using quarterly data from Japan and a bounds testing approach that distinguishes the short run from the long run.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Systems.
Volume (Year): 36 (2012)
Issue (Month): 2 ()
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Aggregate consumption; Exchange rate uncertainty; Japan;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F31 - International Economics - - International Finance - - - Foreign Exchange
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