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Weak Economy and Strong Currency - The Origins of the Strong Yen in the 1990s

  • Gunther Schnabl

    (Tübingen University)

During the 1990’s the Japanese yen proved astonishingly strong despite the persisting recession. This paper tracks the origins of the high yen. It analyses the influence of interest rates, prices and foreign exchange policy on the yen-dollar exchange rate. It comes to the conclusion that real interest differentials can only explain short-term exchange rate changes. Since prices have been exerting their influence on the Japanese currency in the long run, the high yen is explained with deflation. The massive foreign exchange interventions of the 1990’s were only able to stop the appreciation temporarily, if they were unsterilized, but they had no lasting effects.

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File URL: http://128.118.178.162/eps/if/papers/0404/0404017.pdf
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Paper provided by EconWPA in its series International Finance with number 0404017.

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Length: 14 pages
Date of creation: 30 Apr 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0404017
Note: Type of Document - pdf; pages: 14. Published in Vierteljahreshefte zur Wirtschaftsforschung 70 (2001), 489-503.
Contact details of provider: Web page: http://128.118.178.162

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  1. MacDonald, Ronald, 1997. "On the Japanese Yen-US Dollar Exchange Rate: A Structural Econometric Model Based on Real Interest Differentials," CEPR Discussion Papers 1639, C.E.P.R. Discussion Papers.
  2. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  3. Modigliani, Franco, 1988. "Reagan's Economic Policies: A Critique," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 397-426, September.
  4. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
  5. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  6. Kenichi Ohno, 1990. "Exchange Rate Fluctuations, Pass-Through, and Market Share," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 294-310, June.
  7. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers 1992.32, School of Economics, La Trobe University.
  8. de Menil, Georges, 1994. "Comments: International evidence on tradables and nontradables inflation by J. De Gregorio, A. Giovannini and H.C. Wolf," European Economic Review, Elsevier, vol. 38(6), pages 1250-1256, June.
  9. Gunther Schnabl, 2001. "Purchasing Power Parity and the Yen/Dollar Exchange Rate," The World Economy, Wiley Blackwell, vol. 24(1), pages 31-50, 01.
  10. Ramana Ramaswamy & Hossein Samiei, 2000. "The Yen-Dollar Rate; Have Interventions Mattered?," IMF Working Papers 00/95, International Monetary Fund.
  11. Holger C. Wolf & Alberto Giovannini & Jose De Gregorio, 1994. "International Evidenceon Tradables and Nontradables Inflation," IMF Working Papers 94/33, International Monetary Fund.
  12. Gordon, Robert J., 1994. "Comments : International evidence on tradables and nontradables inflation by J. De G regorio, A. Giovannini and H.C. Wolf," European Economic Review, Elsevier, vol. 38(6), pages 1245-1249, June.
  13. Menon, Jayant, 1995. "The Relationship between the Law of One Price and Exchange Rate Pass-through," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 48(4), pages 551-568.
  14. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032473, June.
  15. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15, May.
  16. Schnabl, Gunther & Baur, Dirk, 2002. "Purchasing power parity: Granger causality tests for the yen-dollar exchange rate," Japan and the World Economy, Elsevier, vol. 14(4), pages 425-444, December.
  17. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
  18. Hung, Wansing & Kim, Yoonbai & Ohno, Kenichi, 1993. "Pricing exports: a cross-country study," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 3-28, February.
  19. Ceglowski, Janet, 1996. "The Real Yen Exchange Rate and Japanese Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 4(1), pages 54-63, February.
  20. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May.
  21. Rudiger Dornbusch, 1985. "Purchasing Power Parity," NBER Working Papers 1591, National Bureau of Economic Research, Inc.
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