Title

Floating exchange rates and macroeconomic independence

Document Type

Article

Publication Date

3-1-2016

Subject Area

ARRAY(0x5575b056b530)

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.

Publication Title

International Review of Economics and Finance

Volume

42

First Page

23

Last Page

35

Digital Object Identifier (DOI)

10.1016/j.iref.2015.10.041

ISSN

10590560

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