Information arrival, interest rate differentials, and yen/dollar exchange rate

Yoshihiro Kitamura; Hiroya Akiba

doi:10.1016/j.japwor.2004.05.004

Information arrival, interest rate differentials, and yen/dollar exchange rate

Yoshihiro Kitamura, Hiroya Akiba^*

^*Corresponding author for this work

School of Social Sciences

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

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	https://doi.org/10.1016/j.japwor.2004.05.004
Publication status	Published - 2006 Jan

Keywords

Information
Interest rate differentials
Yen/dollar exchange rate

ASJC Scopus subject areas

Finance
Economics and Econometrics
Political Science and International Relations

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10.1016/j.japwor.2004.05.004

Cite this

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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.",

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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

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KW - Yen/dollar exchange rate

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Information arrival, interest rate differentials, and yen/dollar exchange rate

Abstract

Keywords

ASJC Scopus subject areas

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