Currency Substitution via Expected Exchange Rate and Domestic Money Demand: An Empirical Analysis for Japan
In this paper the currency substitution hypothesis is tested empirically on the Japanese money demand, using monthly data from January 1977 to December 1989. Under a flexible exchange rate a rational economic agent forms currency portfolios for both transaction and speculative reasons for demandin...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English English |
| Published: |
Universiti Putra Malaysia Press
1996
|
| Online Access: | http://psasir.upm.edu.my/id/eprint/3112/1/Currency_Substitution_via_Expected_Exchange_Rate_and_Domestic_Money.pdf http://psasir.upm.edu.my/id/eprint/3112/ |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | In this paper the currency substitution hypothesis is tested empirically on the Japanese money demand, using
monthly data from January 1977 to December 1989. Under a flexible exchange rate a rational economic
agent forms currency portfolios for both transaction and speculative reasons for demanding money. The
nonlinear multivariate maximum likelihood estimation was used to estimate jointly the Japanese money
demand and the expected exchange rate equation; possible existence of current substitution is found. The
empirical results indicate that (a) the expected exchange rate for the Japanese yen/Canadian dollar shows
currency substitution due to speculative demand, and (b) the expected exchange rate of the yen/US dollar
shows currency substitution due to transaction demand. |
|---|