Floating exchange rates and macroeconomic independence

Lian An; Yoonbai Kim; Yu You

doi:10.1016/j.iref.2015.10.041

Floating exchange rates and macroeconomic independence

Lian An, Yoonbai Kim, Yu You

Economics

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

4 Scopus citations

Abstract

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 language	English
Pages (from-to)	23-35
Number of pages	13
Journal	International Review of Economics and Finance
Volume	42
DOIs	https://doi.org/10.1016/j.iref.2015.10.041
State	Published - Mar 1 2016

Bibliographical note

Publisher Copyright:
© 2015 Elsevier Inc.

Funding

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.

Funders	Funder number
CUEB
Research and Innovation Center of Metropolis Economic and Social Development
National Natural Science Foundation of China (NSFC)	ID71401112, ID71501133

Keywords

Cointegration
Floating exchange rates
Macroeconomic independence
Monetary independence

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.iref.2015.10.041

Cite this

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title = "Floating exchange rates and macroeconomic independence",

abstract = "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-{\`a}-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.",

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author = "Lian An and Yoonbai Kim and Yu You",

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AU - An, Lian

AU - Kim, Yoonbai

AU - You, Yu

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N2 - 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.

AB - 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.

KW - Cointegration

KW - Floating exchange rates

KW - Macroeconomic independence

KW - Monetary independence

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JO - International Review of Economics and Finance

JF - International Review of Economics and Finance

ER -

Floating exchange rates and macroeconomic independence

Abstract

Bibliographical note

Funding

Keywords

ASJC Scopus subject areas

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