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International monetary policy spillovers between Japan and the Rest of the World: A GVAR Framework

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  • Salisu, Afees
  • Hammed, Yinka S.

Abstract

We evaluate the impact of international monetary policy spillovers from the US and China on the real exchange rate of Japan. While China remains the top largest trading partner to Japan, the US occupies the second position, indicating potential policy spillovers from these countries to Japan. Adopting the GVAR modelling technique, the outcomes from our findings suggest: (i) the US monetary policy shocks significantly affect Japanese foreign exchange dynamics, causing Yen to depreciate in the instance of a positive shock to US monetary policy; (ii) monetary policy shocks from China and the Euro Area do not constitute a considerable swing in Yen’s exchange rate; (iii) the US monetary policy shock is insignificant in influencing monetary policy conduct of Japan, at least in the short term; (iv) these findings are robust to calm and turbulent periods. Thus, we offer the implications of our findings for policymakers and investors seeking stability as a macroeconomic goal and a stable economy for investment.

Suggested Citation

  • Salisu, Afees & Hammed, Yinka S., 2025. "International monetary policy spillovers between Japan and the Rest of the World: A GVAR Framework," MPRA Paper 123529, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123529
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    References listed on IDEAS

    as
    1. Yinka S. Hammed & Afees A. Salisu, 2023. "Technology Shocks and the Efficiency of Equity Markets in the Developed and Emerging Economies: A Global VAR Approach," JRFM, MDPI, vol. 16(3), pages 1-17, February.
    2. Qi Deng & Weiguo Xiao & Huan Yan & Miaochao Chen, 2022. "The Spillover Effects of U.S. Monetary Policy Normalization on the BRICS Based on Panel VAR Model," Journal of Mathematics, Hindawi, vol. 2022, pages 1-9, January.
    3. Afees A. Salisu & Rangan Gupta & Abeeb Olaniran, 2023. "The effect of oil uncertainty shock on real GDP of 33 countries: a global VAR approach," Applied Economics Letters, Taylor & Francis Journals, vol. 30(3), pages 269-274, February.
    4. Suhua Tian & Li Wang, 2024. "Global spillover impact of US monetary shocks on China–based on empirical test of GVAR model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 33(3), pages 462-481, April.
    5. Alexander Chudik & M. Hashem Pesaran, 2013. "Large Panel Data Models with Cross-Sectional Dependence: A Survey," CESifo Working Paper Series 4371, CESifo.
    6. Lakdawala, Aeimit, 2021. "The growing impact of US monetary policy on emerging financial markets: Evidence from India," Journal of International Money and Finance, Elsevier, vol. 119(C).
    7. Afees A. Salisu & Rangan Gupta & Riza Demirer, 2022. "The financial US uncertainty spillover multiplier: Evidence from a GVAR model," International Finance, Wiley Blackwell, vol. 25(3), pages 313-340, December.
    8. Tony Zhang, 2022. "Monetary Policy Spillovers through Invoicing Currencies," Journal of Finance, American Finance Association, vol. 77(1), pages 129-161, February.
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    Keywords

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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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