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

By:

Makin, John H

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1406.Publication details: Cambridge, Mass. National Bureau of Economic Research 1984.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w1406 (Browse shelf(Opens below))	Not For Loan

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July 1984.

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.