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Portfolio flows and the US dollar–yen exchange rate

Author

Listed:
  • Faek Menla Ali

    (Brunel University London)

  • Fabio Spagnolo

    (Brunel University London)

  • Nicola Spagnolo

    (Brunel University London
    Centre for Applied Macroeconomic Analysis (CAMA))

Abstract

This paper investigates the effects of portfolio flows on the US dollar–Japanese yen exchange rate changes over the period 1988:01–2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar–yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar–yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.

Suggested Citation

  • Faek Menla Ali & Fabio Spagnolo & Nicola Spagnolo, 2017. "Portfolio flows and the US dollar–yen exchange rate," Empirical Economics, Springer, vol. 52(1), pages 179-189, February.
    • Handle: RePEc:spr:empeco:v:52:y:2017:i:1:d:10.1007_s00181-016-1075-7
    DOI: 10.1007/s00181-016-1075-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rates; Portfolio flows; Regime-switching;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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