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The Historical Movement of the Yen and Dollar Exchange Rates

In: Business and Management

Submitted By gigeron555
Words 1506
Pages 7
The Historical Movement of the Yen and Dollar Exchange Rates

Johan Floyd Omoso Boles
173812
International Christian University
International Finance
Heather A. Montgomery

Abstract: This study finds the purchasing power parity (PPP) model of exchange rates to explain movements in the yen-dollar exchange rate over the long run of twenty two years. The results show that this theory does not necessarily provide a satisfactory explanation of the behavior of exchange rates. However, as the exchange rates became flexible again in recent years, the theory has become more applicable.

Does the PPP model exactly indicate that changes in price levels could bring about changes in the yen/dollar exchange rate?

1. Introduction

“As for all that bold talk from Tokyo: as FT Alphaville earlier remarked, citing a Wednesday note from Nomura’s rates team, central banks ‘just don’t seem to be getting the same, err, market bang for their buck as they used to’ ” (The Financial Times, August 25, 2010). Apparently, Japan’s effort to push its yen to appreciate a long time ago did not seem to get a huge market response. Nowadays, the situation is not getting any better despite the struggles of the Central Bank of Japan to stabilize the growth of its currency. Acknowledging this scenario, the researcher would like to talk about the influence of the PPP (Purchasing Power Parity) model to argue if changes in price levels could bring about changes in the yen/dollar exchange rate. Below is the yen-dollar exchange rates movements from January 1980 to August 2013. The researcher will use this figure to examine the movements of the yen-dollar exchange rates for this paper.
Figure 1: Yen-Dollar exchange rate, Jan. 1980 - Aug. 2013
Source: IMF e-Library

Additionally, this paper will analyze movements in the yen-dollar exchange rate and test the implications of one of the…...

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