This paper investigates the effects of portfolio flows on the US dollar-Japanese yen exchange rate changes over the period 1988:01-2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar-yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar-yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.
Portfolio flows and the US dollar-yen exchange rate
Fabio Spagnolo;
2017-01-01
Abstract
This paper investigates the effects of portfolio flows on the US dollar-Japanese yen exchange rate changes over the period 1988:01-2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar-yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar-yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.Pubblicazioni consigliate
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