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Weak economy and strong currency: The origins of the strong yen in the 1990's

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  • Schnabl, Gunther

Abstract

During the 1990's the Japanese yen proved astonishingly strong despite the persisting recession. This paper tracks the origins of the high yen. It analyses the influence of interest rates, prices and foreign exchange policy on the yen-dollar exchange rate. It comes to the conclusion that real interest differentials can only explain shortterm exchange rate changes. Since prices have been exe rting their influence on the Japanese currency in the long run, the high yen is explained with deflation. The massive foreign exchange interventions of the 1990's were only able to stop the appreciation temporarily, if they were unsterilized, but they had no lasting effects. --

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Bibliographic Info

Paper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 218.

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Date of creation: 2001
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Handle: RePEc:zbw:tuedps:218

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Web page: http://www.uni-tuebingen.de/en/faculties/wirtschafts-und-sozialwissenschaftliche-fakultaet/faecher/wirtschaftswissenschaft.html
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Keywords: Yen; Yen/Dollar Exchange Rate; Foreign Exchange Intervention; Japan;

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  1. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
  2. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15.
  4. Menon, Jayant, 1995. "The Relationship between the Law of One Price and Exchange Rate Pass-through," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 48(4), pages 551-568.
  5. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  6. de Menil, Georges, 1994. "Comments: International evidence on tradables and nontradables inflation by J. De Gregorio, A. Giovannini and H.C. Wolf," European Economic Review, Elsevier, vol. 38(6), pages 1250-1256, June.
  7. Ceglowski, Janet, 1996. "The Real Yen Exchange Rate and Japanese Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 4(1), pages 54-63, February.
  8. Gordon, Robert J., 1994. "Comments : International evidence on tradables and nontradables inflation by J. De G regorio, A. Giovannini and H.C. Wolf," European Economic Review, Elsevier, vol. 38(6), pages 1245-1249, June.
  9. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
  10. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-81, March.
  11. Schnabl, Gunther & Baur, Dirk, 2001. "Purchasing power parity: Granger causality tests for the yen-dollar exchange rate," Tübinger Diskussionsbeiträge 213, University of Tübingen, School of Business and Economics.
  12. Modigliani, Franco, 1988. "Reagan's Economic Policies: A Critique," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 397-426, September.
  13. Ramana Ramaswamy & Hossein Samiei, 2000. "The Yen-Dollar Rate," IMF Working Papers 00/95, International Monetary Fund.
  14. MacDonald, Ronald, 1997. "On the Japanese Yen-US Dollar Exchange Rate: A Structural Econometric Model Based on Real Interest Differentials," CEPR Discussion Papers 1639, C.E.P.R. Discussion Papers.
  15. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  16. Rudiger Dornbusch, 1985. "Purchasing Power Parity," NBER Working Papers 1591, National Bureau of Economic Research, Inc.
  17. Hung, Wansing & Kim, Yoonbai & Ohno, Kenichi, 1993. "Pricing exports: a cross-country study," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 3-28, February.
  18. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May.
  19. Kenichi Ohno, 1990. "Exchange Rate Fluctuations, Pass-Through, and Market Share," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 294-310, June.
  20. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032473, December.
  21. Gunther Schnabl, 2001. "Purchasing Power Parity and the Yen/Dollar Exchange Rate," The World Economy, Wiley Blackwell, vol. 24(1), pages 31-50, 01.
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Cited by:
  1. Stadler, Manfred, 2003. "Innovation and growth: The role of labor-force qualification," Tübinger Diskussionsbeiträge 255, University of Tübingen, School of Business and Economics.
  2. Baten, Jörg & Wallusch, Jacek, 2003. "Market integration and disintegration of Poland and Gemany [Germany] in the 18th century," Tübinger Diskussionsbeiträge 268, University of Tübingen, School of Business and Economics.
  3. Koepke, Nikola & Baten, Joerg, 2005. "The biological standard of living in Europe during the last two millennia," European Review of Economic History, Cambridge University Press, vol. 9(01), pages 61-95, April.
  4. Pitterle, Ingo & Steffen, Dirk, 2004. "Welfare Effects of Fiscal Policy under Alternative Exchange Rate Regimes : The Role of the Scale Variable of Money Demand," Tübinger Diskussionsbeiträge 284, University of Tübingen, School of Business and Economics.
  5. Manfred Stadler & Rüdiger Wapler, 2004. "Endogenous Skilled-biased Technological Change and Matching Unemployment," Journal of Economics, Springer, vol. 81(1), pages 1-24, 01.

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