IMF Working Papers

Real Exchange Rate Fluctuations and the Business Cycle: Evidence From Japan

By Eswar S Prasad, Bankim Chadha

November 1, 1996

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Eswar S Prasad, and Bankim Chadha. Real Exchange Rate Fluctuations and the Business Cycle: Evidence From Japan, (USA: International Monetary Fund, 1996) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the relationship between the real exchange rate and the business cycle in Japan during the floating rate period. A structural vector autoregression is used to identify different types of macroeconomic shocks that determine fluctuations in aggregate output and the real exchange rate. Relative nominal and real demand shocks are found to be the main determinants of variation in real exchange rate changes, while relative output growth is driven primarily by supply shocks. Historical decompositions suggest that the sharp appreciations of the yen in 1993 and 1995 and its subsequent depreciation can be attributed primarily to relative nominal shocks.

Subject: Business cycles, Economic growth, Economic theory, Exchange rates, Foreign exchange, Real effective exchange rates, Real exchange rates, Supply shocks

Keywords: Aggregate price level, Business cycle, Business cycle dynamics, Business cycle fluctuations, Business cycles, Critical value, Demand shock, Depreciated exchange rate, Exchange rate, Exchange rates, Global, Partner country CPI, Price level, Real effective exchange rate, Real effective exchange rates, Real exchange rate, Real exchange rates, Structural vector autoregression, Supply shock, Supply shocks, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1996/132

  • Stock No:

    WPIEA1321996

  • ISBN:

    9781451855333

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 44, No. 3, September 1997.

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