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

Yoshihiro Kitamura, Hiroya Akiba

Research output: Contribution to journalArticle

3 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 languageEnglish
Pages (from-to)108-119
Number of pages12
JournalJapan and The World Economy
Volume18
Issue number1
DOIs
Publication statusPublished - 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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