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U.S. Monetary Policy Regimes and U.S.-Japan Financial Relations

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  • V. Vance Roley
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    Abstract

    This paper examines the pervasiveness of the effects of U.S. monetary policy regime shifts and unanticipated changes in money on international financial markets. Four potential regimes from October 1977 to May 1985 are examined in terms of the response of yen-denominated securities in the Tokyo market to U.S. money surprises. The rationality of the responses in domestic and foreign on shore financial markets is further examined by testing whether the responses of dollar-denominated securities, yen-dominated securities, the spot yen/dollar exchange rate,and the forward yen/dollar exchange rate violate covered interest parity.The use of yen-denominated assets and the yen/dollar exchange rate allows further tests of the effects of the liberalization of restrictions on capital mobility in Japan since the late 1970s on market efficiency.

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    File URL: http://www.nber.org/papers/w1858.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1858.

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    Date of creation: May 1987
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    Handle: RePEc:nbr:nberwo:1858

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    1. Cornell, Bradford & Shapiro, Alan C., 1985. "Interest rates and exchange rates: Some new empirical results," Journal of International Money and Finance, Elsevier, vol. 4(4), pages 431-442, December.
    2. V. Vance Roley, 1982. "Weekly money supply announcements and the volatility of short-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Apr, pages 3-15.
    3. Roley, V Vance & Walsh, Carl E, 1985. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 1011-39, Supp..
    4. Takatoshi Ito, 1989. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," NBER Working Papers 1493, National Bureau of Economic Research, Inc.
    5. Henry C. Wallich, 1984. "Recent techniques of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 21-30.
    6. Walsh, Carl E, 1984. "Interest Rate Volatility and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 133-50, May.
    7. Hakkio, Craig S & Pearce, Douglas K, 1985. "The Reaction of Exchange Rates to Economic News," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 621-36, October.
    8. Husted, Steven & Kitchen, John, 1985. "Some Evidence on the International Transmission of U.S. Money Supply Announcement Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 456-66, November.
    9. Frenkel, Jacob A & Levich, Richard M, 1977. "Transaction Costs and Interest Arbitrage: Tranquil versus Turbulent Periods," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1209-26, December.
    10. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
    11. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
    12. Abel, Andrew B. & Mishkin, Frederic S., 1983. "An integrated view of tests of rationality, market efficiency and the short-run neutrality of monetary policy," Journal of Monetary Economics, Elsevier, vol. 11(1), pages 3-24.
    13. Cornell, Bradford, 1983. "Money Supply Announcements and Interest Rates: Another View," The Journal of Business, University of Chicago Press, vol. 56(1), pages 1-23, January.
    14. V. Vance Roley, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc.
    15. Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
    16. Deardorff, Alan V, 1979. "One-Way Arbitrage and Its Implications for the Foreign Exchange Markets," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 351-64, April.
    17. Grossman, Jacob, 1981. "The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary Surprises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 409-24, November.
    18. Falk, Barry L. & Orazem, Peter, 1985. "The Money Supply Announcements Puzzle: A Comment," Staff General Research Papers 11100, Iowa State University, Department of Economics.
    19. Hein, Scott E, 1985. "The Response of Short-term Interest Rates to Weekly Money Announcements: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 264-71, May.
    20. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    21. William T. Gavin & Nicholas V. Karamouzis, 1984. "Monetary policy and real interest rates: new evidence from the money stock announcements," Working Paper 8406, Federal Reserve Bank of Cleveland.
    22. Roley, V Vance, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 344-54, August.
    23. Takatoshi Ito, 1987. "Capital Controls and Covered Interest Parity," NBER Working Papers 1187, National Bureau of Economic Research, Inc.
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