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The Analysis of the Effect of Yen Appreciation on Economic

Author: ShenDeFang
Tutor: FanYueJin; LiPing
School: Shandong University of Technology
Course: World economy
Keywords: Square agreement Yen appreciation Economic growth RMB appreciation
CLC: F1
Type: Master's thesis
Year: 2012
Downloads: 82
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Abstract

In the1970s, along with the collapse of the bretton woods system, international exchange rate system has changed from the original fixed exchange rate system into the floating exchange rate system, and the Japanese rose the yen exchange rate against the dollar dramatically under American pressure. Since then the trend lasted for23years. The Japanese government overreacted because of the yen appreciation, and made the Japanese economy experience the formation and the high of bubble economy. In the1990s, the bubble economy collapsed in the last, and Japan went into a decade-long recession. Since entering the floating exchange rate, the yen appreciation caused what effects of the economic? The long-term appreciation of yen was the main reason for Japan’s ten recession?Theoretically and empirically studying the impact of exchange rate on economic growth is helpful to our understanding. This paper expounds a few acting way of the exchange rate movements affecting economic growth, and then analyze the background of yen appreciation using the historical data, and empirically analyzes the influence of yen appreciation on the Japanese economy.(1) On the basis of using the ADF to test the time series stability, we use EG method to test the co-integration relationship, and use Granger causality to test the causal relationship between these two variables;(2) In order to depict the long dynamic role, on the basis of the above, we establish the vector regression model (VAR), and study the dynamic impact reaction of Japan’s GDP to yen exchange rate level by applying impulse response function;(3) Using variance decomposition technology, we further study the relative importance of yen exchange rate when explaining the Japan’s GDP changes. Finally, reviewing the corresponding policies and measures of Japanese government for coping with their currency appreciation, we draw the conclusion: The yen appreciation outweighs the cost, it has stimulative effect on Japan’s economic growth. The collapse of Japan’s bubble economy is not caused by the sharply upsurge of the yen’s rise in long-term, but a series of untimely and excessive measures taken by Japanese government in dealing with the yen appreciation are the main causes of Japanese economy depression in ten years.Since the exchange rate system reformed, China began to implement the managed floating exchange rate system which based on market supply-demand. The RMB exchange rate refers to a basket of currencies, and it will no longer be pegged to the dollar. From then on, the RMB has maintained a steady upward trend. The current China has much common with the Japan in1980s around. In recent years, the exchange rate of RMB calls for attention by scholars at home and abroad, so facing the rising voice of international society for RMB appreciation, and estimating the advantages and disadvantages of the RMB appreciation correctly is an important research subject in China economic development present stage. By comparing the similarities and differences of the RMB and yen appreciation, this paper put forward some suggestions for dealing with the RMB appreciation basing on the experience and lesson of the yen appreciation.

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