Floating exchange rates and macroeconomic independence

Lian An, Yoonbai Kim, Yu You

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


In this paper, we evaluate macroeconomic independence during different time periods categorized by different exchange rate systems and degree of capital mobility. A cointegration VAR framework is developed to evaluate the performance of floating exchange rates in increasing macroeconomic independence in Japan vis-à-vis the U.S. Using this empirical framework, we test various hypotheses related to international transmission and the movement of interest rates and goods prices. Our results show that Japan's monetary independence has declined over time, but retains some degree of monetary autonomy due to the floating exchange rate system. In contrast, although capital controls in place prior to the 1980s do not enhance monetary independence, they do help to improve goods market independence.

Original languageEnglish
Pages (from-to)23-35
Number of pages13
JournalInternational Review of Economics and Finance
StatePublished - Mar 1 2016

Bibliographical note

Funding Information:
We thank the editor and two anonymous referees for valuable feedback. We also thank the Research and Innovation Center of Metropolis Economic and Social Development, CUEB, China , and National Natural Science Foundation of China (grant ID71401112 and ID71501133 ) for financial support. All errors are ours.


  • Cointegration
  • Floating exchange rates
  • Macroeconomic independence
  • Monetary independence

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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