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The exchange rate and long-run price movements in the US and Japan

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  • Zhenhui Xu

Abstract

The close economic relationship between the US and Japan raises an interesting question about the effect of price movements in the US and Japan on the bilateral exchange rate. This paper investigates the long-run purchasing power parity between the US dollar and the Japanese yen. While earlier empirical studies often rejected the PPP hypothesis for the US and Japan, our results show that allowing measurement errors in price indices, the long-run PPP between the two countries is supported based on both the Engle-Granger and the Johansen cointegration tests.

Suggested Citation

  • Zhenhui Xu, 1999. "The exchange rate and long-run price movements in the US and Japan," Applied Economics Letters, Taylor & Francis Journals, vol. 6(4), pages 227-230.
  • Handle: RePEc:taf:apeclt:v:6:y:1999:i:4:p:227-230 DOI: 10.1080/135048599353393
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    References listed on IDEAS

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    Cited by:

    1. Cushman, David O., 2008. "Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 413-424, December.
    2. Xu, Zhenhui, 2003. "Purchasing power parity, price indices, and exchange rate forcasts," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 105-130, February.
    3. David Havrlant & Roman HuĊĦek, 2011. "Models of Factors Driving the Czech Export," Prague Economic Papers, University of Economics, Prague, pages 195-215.
    4. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2012. "The Greek financial crisis: Growing imbalances and sovereign spreads," Journal of International Money and Finance, Elsevier, pages 498-516.
    5. Sideris, Dimitrios, 2006. "Testing for long-run PPP in a system context: Evidence for the US, Germany and Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 143-154, April.

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