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 1 |
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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Cite this
Kitamura, Y., & Akiba, H. (2006). Information arrival, interest rate differentials, and yen/dollar exchange rate. Japan and The World Economy, 18(1), 108-119. https://doi.org/10.1016/j.japwor.2004.05.004