Exchange Rate Determination with Systematic and Unsystematic Policy Regime Changes: Evidence From the Yen/Dollar Rate / John H. Makin, Raymond D. Sauer.

Format:

Book

Author/Creator:

Makin, John H.

Contributor:

National Bureau of Economic Research.

Sauer, Raymond D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1406.

NBER working paper series no. w1406

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Exchange Rate Determination with Systematic and Unsystematic Policy Regime Changes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper presents results of estimating an exchange rate equation in light of theoretical considerations regarding changes in sterilization and intervention policy and tax policy which imply that the coefficients in the equation will not behave as fixed parameters in a given sample period,as standard econometric practice assumes. We compare the results of ordinary least squares and a random coefficients model of the Japanese Yen-- U.S. dollar exchange rate during the floating period of July 1973 through June 1982.When systematic end of year policy changes affecting Japanese reserves are explicitly modeled, both OLS and the random coefficients model show increased explanatory power. The random coefficients model appears to be superior to OLS however; by allowing the coefficients to vary over time as required by the economic theory discussed above, estimates of the mean response coefficients for the floating period all have the hypothesized sign, and explanatory power is sharply increased.

Notes:

Print version record

July 1984.