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Sources of Exchange Rate Movements in Japan: Is the Exchange Rate a Shock-Absorber or a Source of Shock?

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  • Lian An
  • Yoonbai Kim

Abstract

This paper investigates the sources of movements of the yen-dollar exchange rate using a structural vector autoregression (VAR) with a combination of short-run and long-run zero restrictions. We find that real shocks dominate nominal shocks in explaining the exchange rate movements, with relative real demand shocks as the major contributor. The exchange rate market does not seem to be a major source of disturbances to the Japanese economy. The overall results support the view that the bilateral dollar exchange rate in Japan is a shock-absorber rather than a source of shocks. Copyright © 2010 Blackwell Publishing Ltd.

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  • Lian An & Yoonbai Kim, 2010. "Sources of Exchange Rate Movements in Japan: Is the Exchange Rate a Shock-Absorber or a Source of Shock?," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 265-276, May.
  • Handle: RePEc:bla:reviec:v:18:y:2010:i:2:p:265-276
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    Cited by:

    1. Kiptui, Moses, 2015. "Sources of Exchange Rate Fluctuations in Kenya: The Relative Importance of Real and Nominal Shocks," MPRA Paper 61515, University Library of Munich, Germany.
    2. Hunter, John & Menla Ali, Faek, 2014. "Money demand instability and real exchange rate persistence in the monetary model of USD–JPY exchange rate," Economic Modelling, Elsevier, vol. 40(C), pages 42-51.
    3. Doojav, Gan-Ochir, 2011. "The role of exchange rate in Mongolia: A shock absorber or a source of shocks?," MPRA Paper 72145, University Library of Munich, Germany, revised Nov 2011.

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