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Comparative Empirical Research on Macroeconomic Effects of Exchange Rate Policy

Research Project

Project/Area Number 16530176
Research Category

Grant-in-Aid for Scientific Research (C)

Allocation TypeSingle-year Grants
Section一般
Research Field Economic policy
Research InstitutionKobe University

Principal Investigator

MIYAO Ryuzo  Kobe University, Research Institute for Economics and Business Administration, Professor, 経済経営研究所, 教授 (40229802)

Project Period (FY) 2004 – 2006
Project Status Completed (Fiscal Year 2006)
Budget Amount *help
¥1,800,000 (Direct Cost: ¥1,800,000)
Fiscal Year 2006: ¥600,000 (Direct Cost: ¥600,000)
Fiscal Year 2005: ¥600,000 (Direct Cost: ¥600,000)
Fiscal Year 2004: ¥600,000 (Direct Cost: ¥600,000)
Keywordsexchange rate / macroeconomic policy / time series analysis / マクロ経済効果
Research Abstract

It is highly important to understand macroeconomic effects of exchange rate policy in Japan in contemplating a possible way to accomplish sustained economic recovery from the prolonged stagnation over the last decade. This research project aims to conduct an extensive empirical research on macroeconomic impacts of Japan's exchange rate policy. To this end, we employ a time-series method and adopt a multivariate vector-autoregressive (VAR) framework. The benchmark model consists of the following four series: GDP gap estimated using a production function approach, exchange rate (yen-dollar rate), interest rate (real call rate), and stock prices (real Nikkei Average). We compute impulse response functions of structural disturbances. The data we use is for the period of 1983-2004.
The main finding of our empirical analysis is that exchange rate shocks (yen depreciation shocks) have a negative impact on GDP gap especially in the medium and long run. To check robustness of our finding, we examine different sample periods (1983-1995, and 1993-2004) and alternative GDP gap series (based on Hodrick and Prescott filter), but the result was unaffected.
Our main results suggest that "spending switch effects" of yen depreciation might be very limited in Japan especially in recent years and possibly outweighed by negative effects such as cost push effects or negative terms of trade effects. This implies that deliberate yen depreciation policy, which was proposed by some economists, is likely to have a very limited effect on the Japanese economy.

Report

(4 results)
  • 2006 Annual Research Report   Final Research Report Summary
  • 2005 Annual Research Report
  • 2004 Annual Research Report

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Published: 2004-04-01   Modified: 2016-04-21  

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