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Interest Rate and Price Linkages between the USA and Japan: Evidence from the Post-Bretton Woods Period

Author

Listed:
  • Katarina Juselius

    (University of Copenhagen, Institute of Economics)

  • Ronald MacDonald

    (University of Strathclyde, Department of Economics)

Abstract

In this paper we investigate the extent to which a number of key parity conditions hold within and between the USA and Japan. Previous research has demonstrated that the nonstationarity of the "simple" parity conditions was related to the nonstationarity of the real exchange rate, reflecting the very slow adjustment to fundamental real exchange rates. The need to finance the resulting trade deficits seemed to have caused similar nonstationary movements in the long-term bond differential. Support for this proposition is also given in this paper. Furthermore, our results point to a reversal of the linkages partly in the term structure from the long to the short end of the market, partly in the Fisher parities from the nominal interest rate to inflation rate. These results might be important for the conduct of monetary policy which works on the economy through short-term interest rates.

Suggested Citation

  • Katarina Juselius & Ronald MacDonald, 2000. "Interest Rate and Price Linkages between the USA and Japan: Evidence from the Post-Bretton Woods Period," Discussion Papers 00-13, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0013
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2000/0013.pdf/
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    Cited by:

    1. Signe Rosenberg, 2015. "The Impact of a Change in Real Estate Value on Private Consumption in Estonia," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 7(2).
    2. Joscha Beckmann, 2011. "Nonlinear Adjustment, Purchasing Power Parity and the Role of Nominal Exchange Rates and Prices," Ruhr Economic Papers 0272, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Reade, J. James & Volz, Ulrich, 2011. "Leader of the pack? German monetary dominance in Europe prior to EMU," Economic Modelling, Elsevier, vol. 28(1), pages 239-250.
    4. Beckmann, Joscha, 2013. "Nonlinear adjustment, purchasing power parity and the role of nominal exchange rates and prices," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 176-190.
    5. Mina Kim & Gue Dae Cho & Won W. Koo, 2004. "Does the Exchange Rate Matter to Agricultural Bilateral Trade between Canada and the U.S.?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 52(1), pages 127-145, March.
    6. repec:zbw:rwirep:0272 is not listed on IDEAS

    More about this item

    Keywords

    International Parity Conditions;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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