Long swings in Japan’s current account and in the yen
AbstractThe yen has experienced several big swings over recent decades. This paper argues that the fluctuations of the Japanese exchange rate resulted mainly from corresponding movements in the current account, which affected the demand for yen relative to other currencies. The paper builds a vector error correction model for the exchange rate and the current account, based on the idea that the exchange rate and its economic fundamental do not move too far apart over time. In addition, the model allows for a Markov-switching stochastic trend in the current account. Regime changes occur at uncertain dates, possibly in response to exchange rate changes. Bayesian estimation proceeds using an innovative Gibbs-sampling procedure. The empirical results suggest that recurrent structural breaks in the yen’s fundamentals account for the large fluctuations of the Japanese exchange rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2012/08.
Length: 35 pages
Date of creation: Mar 2012
Date of revision:
Contact details of provider:
Postal: Francisco Tomás y Valiente, 5, 28049 Madrid
Web page: http://www.uam.es/departamentos/economicas/analecon/default.html
More information through EDIRC
Japanese exchange rate; current account; exchange rate fundamental; Markov-switching; cointegration; Gibbs-sampling; purchasing power parity puzzle.;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lau, Evan & Baharumshah, Ahmad Zubaidi & Haw, Chan Tze, 2006. "Current account: mean-reverting or random walk behavior?," Japan and the World Economy, Elsevier, vol. 18(1), pages 90-107, January.
- S. Illeris & G. Akehurst, 2001. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 21(1), pages 1-4, January.
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, January.
- Christian B. Mulder & Matthieu BussiÃ¨re, 1999. "External Vulnerability in Emerging Market Economies - How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
- Bauwens, Luc & Lubrano, Michel & Richard, Jean-Francois, 2000. "Bayesian Inference in Dynamic Econometric Models," OUP Catalogue, Oxford University Press, number 9780198773139.
- BAUWENS, Luc & RICHARD, Jean-François, .
"A 1-1 poly-t random variable generator with application to Monte Carlo integration,"
CORE Discussion Papers RP
-644, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bauwens, Luc & Richard, Jean-Francois, 1985. "A 1-1 poly-t random variable generator with application to Monte Carlo integration," Journal of Econometrics, Elsevier, vol. 29(1-2), pages 19-46.
- Nikolas Müller-Plantenberg, 2003. "Japan's Imbalance of Payments," CESifo Working Paper Series 1089, CESifo Group Munich.
- Kenen,Peter B., 2000. "The International Economy," Cambridge Books, Cambridge University Press, number 9780521644358, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Raúl López-Pérez).
If references are entirely missing, you can add them using this form.