Working Paper: NBER ID: w14816
Authors: Maurice Obstfeld
Abstract: This paper explores the links between macroeconomic developments, especially monetary policy, and the exchange rate during the period of Japan's bubble economy and subsequent stagnation. The yen experienced epic gyrations over that period, starting with its rapid ascent after the March 1985 Plaza Accord of major industrial countries. Two distinct periods of endaka fukyo, or recession induced by a strong yen, occurred in the late 1980s and the early 1990s at critical phases of the monetary policy cycle. My approach emphasizes the interaction of short-term developments driven by monetary factors (as they affect international real interest rate differentials) and the long-term determinants of the real exchange rate's equilibrium path. Chief among those long-run determinants are relative sectoral productivity levels and the terms of trade, including the price of oil. Since the mid-1990s, the yen's real exchange rate has generally followed a depreciating trend and Japan's comprehensive terms of trade have deteriorated.
Keywords: No keywords provided
JEL Codes: F14; F41; F42; F51; N15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in terms of trade (F14) | real depreciation of the yen (F31) |
| appreciation of yen's real effective exchange rate (F31) | slowdown in Japan's economic growth rate (F69) |
| year-to-year real yen depreciations (F31) | gains in competitiveness by Japanese exporters (F14) |
| monetary shocks (E39) | exchange rate movements (F31) |
| real interest differentials (E43) | exchange rate movements (F31) |