IDEAS home Printed from
   My bibliography  Save this paper

Exchange rates, prices, and external adjustment in the United States and Japan


  • Peter Hooper
  • Jaime R. Marquez


This paper studies the responsiveness of external balances--trade volumes and prices--to changes in exchange rates. Our objectives are twofold: to provide an analytical review of the literature in this area and to assess the influence of exchange rate movements on external adjustment in the two countries whose external imbalances have dominated all others over the past decade, the United States and Japan. ; We find that the conventional partial-equilibrium model of the trade balance has performed generally quite well in predicting the path of the U.S. and Japanese external balance over the past decade. Second, in a partial­-equilibrium setting, exchange-rate changes have a significant and substantial influence on movements in external balances. This view is supported by a massive empirical literature focusing on the estimation of price elasticities in trade, by casual inspection of the data, and by our own econometric estimates of trade elasticities. Third, Japanese real trade flows appear to be considerably less responsive to exchange-rate changes than U.S. real trade flows. This asymmetry can be traced only in part to evidence that Japanese exporter and U.S. exporters differ in the extent to which they pass-through exchange-rate changes to the foreign-currency prices of their exports. Finally, Japanese exporters tend to pass-through significantly less of any given percentage exchange rate change than U.S. exporters. Part of that difference is attributable to the greater sensitivity of Japanese production costs to exchange rate changes--Japanese export prices fall when the yen appreciates, partly because the prices of petroleum and other imported raw materials in Japan tend to fall in proportion to the appreciation of the yen.

Suggested Citation

  • Peter Hooper & Jaime R. Marquez, 1993. "Exchange rates, prices, and external adjustment in the United States and Japan," International Finance Discussion Papers 456, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:456

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    2. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    3. Eva Marikova Leeds, 1993. "Voucher Privatization in Czechoslovakia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 35(3), pages 19-37, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Adams, F. Gerard & Gangnes, Byron, 1996. "Japan's persistent trade surplus: Policies for adjustment," Japan and the World Economy, Elsevier, vol. 8(3), pages 309-333, September.
    2. Siregar, Reza & Rajan, Ramkishen S., 2004. "Impact of exchange rate volatility on Indonesia's trade performance in the 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 218-240, June.
    3. Leachman, Lori L. & Francis, Bill B., 2000. "Multicointegration Analysis of the Sustainability of Foreign Debt," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 207-227, April.

    More about this item


    Foreign exchange rates ; Japan;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:456. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.