Implications for the Yen of Japanese Current Account Adjustment

This paper presents a quantitative evaluation of the effect on the yen of some alternative scenarios under which Japan reaches current account balance. The analytical framework is a global general equilibrium model, based closely on Obstfeld and Rogoff (2005a, b), within which relative prices clear the world markets for traded goods as well as the domestic markets for nontraded goods. Depending on assumptions about the critical substitution elasticities underlying the model, the yen could appreciate by as much as 10 percent for each 1 percent of GDP reduction in its current account surplus. The effect would be smaller if substitution elasticities were larger, or if adjustment were accompanied by an expansion of Japanese nontradable output, the latter presumably implied by a return to a more efficient level of labor utilization.

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Year of publication:	2006
Authors:	Obstfeld, Maurice
Published in:	Monetary and Economic Studies. - Institute for Monetary and Economic Studies. - Vol. 24.2006, S1, p. 27-38
Publisher:	Institute for Monetary and Economic Studies
Subject:	Current account adjustment \| International capital flows \| Japanese yen exchange rate

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Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	F32 - Current Account Adjustment; Short-Term Capital Movements
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004975805