Abstract
This paper examines the effects of interest rate differentials as inflowing information into the forex market on the yen/dollar exchange rate and unexpected trading volume by a structural VAR model. The impulse responses show that the short-term interest rate differential affects the exchange rate through (a) UIP with little change in unexpected trading volume, and (b) different expectation revisions at different points in time with a high transaction volume. The effects of long-term interest rate differential on the exchange rate appear instantaneous with high trading volume, reflecting instantaneous reshuffling in international portfolio holdings of long-term assets.
| Original language | English |
|---|---|
| Pages (from-to) | 108-119 |
| Number of pages | 12 |
| Journal | Japan and the World Economy |
| Volume | 18 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2006 Jan |
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Keywords
- Information
- Interest rate differentials
- Yen/dollar exchange rate
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
Information arrival, interest rate differentials, and yen/dollar exchange rate. / Kitamura, Yoshihiro; Akiba, Hiroya.
In: Japan and the World Economy, Vol. 18, No. 1, 01.2006, p. 108-119.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Information arrival, interest rate differentials, and yen/dollar exchange rate
AU - Kitamura, Yoshihiro
AU - Akiba, Hiroya
PY - 2006/1
Y1 - 2006/1
N2 - This paper examines the effects of interest rate differentials as inflowing information into the forex market on the yen/dollar exchange rate and unexpected trading volume by a structural VAR model. The impulse responses show that the short-term interest rate differential affects the exchange rate through (a) UIP with little change in unexpected trading volume, and (b) different expectation revisions at different points in time with a high transaction volume. The effects of long-term interest rate differential on the exchange rate appear instantaneous with high trading volume, reflecting instantaneous reshuffling in international portfolio holdings of long-term assets.
AB - This paper examines the effects of interest rate differentials as inflowing information into the forex market on the yen/dollar exchange rate and unexpected trading volume by a structural VAR model. The impulse responses show that the short-term interest rate differential affects the exchange rate through (a) UIP with little change in unexpected trading volume, and (b) different expectation revisions at different points in time with a high transaction volume. The effects of long-term interest rate differential on the exchange rate appear instantaneous with high trading volume, reflecting instantaneous reshuffling in international portfolio holdings of long-term assets.
KW - Information
KW - Interest rate differentials
KW - Yen/dollar exchange rate
UR - http://www.scopus.com/inward/record.url?scp=29444441618&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=29444441618&partnerID=8YFLogxK
U2 - 10.1016/j.japwor.2004.05.004
DO - 10.1016/j.japwor.2004.05.004
M3 - Article
AN - SCOPUS:29444441618
VL - 18
SP - 108
EP - 119
JO - Japan and the World Economy
JF - Japan and the World Economy
SN - 0922-1425
IS - 1
ER -