Studies On Economic Effects Of Exchange Rate Fluctuations

This thesis focuses on comprehensive analysis of economic effects of exchange rate fluctuations on foreign trade .direct investment, commodity prices .interest rates and so forth .followed by all-round empirical studies of the exchange rate fluctuations' effects on Japan' s economy since its adoption at float exchange rate (1971—2003) some conclusions are drawn then on such bases.Other contributions of the thesis are a systematic introduction of the latest achievements of new open macro-economy and an empirical analysis of given prices. Not only from macro economic perspective .but also from microeconomic view, empirical analysis are conducted that to what extent exchange rates fluctuations affect foreign trade , direct investment, commodity prices.The first chapter is an introduction which provides the background of the research and its purposes. A literature review on the effects of exchange rate volatility on economics is given. And the following is about the arrangement of this research, including its logic, structure and conclusions, with a review of this research' s innovative points and limitation at the end.The second chapter studies the impact of exchange rate volatility on the balance of trade account. Generally speaking, foreign trade can promote the economic growth of a country, and elasticity approach suggests that exchange rate volatility can adjust a country' s trade balance. This chapter conducts an empirical analysis on the effects of exchange rate volatility on the import and export volume, and explains why the effects are not significant in short-term from by means of the transferring rate of import and export prices. As a step further, the research provides an empirical analysis on the impact of exchange rate volatility on the conditions of trade.The third chapter is focused on the effects of exchange rate volatilityon FDI. Theoretically, exchange rate volatility impacts FDI by means of relative production cost effect and wealth effect, while FDI in turn affects the economy of the investing and invested countries through several aspects such as industry structure, trade and employment. This chapter makes an empirical analysis about the effects of Yen' s volatility on Japan' s FDI, and then discusses the emptiness of domestic industry as a result of FDI, which negatively affects the upgrading process -of domestic industry. Finally, the effects of FDI on employment from the perspectives of both investing and invested countries are analyzed.The fourth chapter studies the relationship between exchange rate volatility and domestic price level. Exchange rate volatility first affects the import price, then the wholesale price, and finally the retail price. The exchange rate volatility is not totally transferred to the import price, because imported intermediate goods form only part of final goods, and the effects of exchange rate fluctuation on the export price, the wholesale price and retail price is gradually decreasing. This chapter first analyses the transferring path of exchange rate volatility on domestic prices. Then it explains the reason why only part of the exchange rate volatility is transferred to the price level in the condition of an open economy. Empirical analysis is made upon the transferring rate of exchange rate volatility onto the import price, domestic wholesale price and retail price.The fifth chapter explores the effects of exchange rate fluctuation on interest rate. There are many theories studying the relationship between exchange rate and interest rate in the international finance area, and different relationships are inferred based on various analytical angels. This chapter first examines the theoretical relationship between exchange rate and interest rate. And a case study of Japan is provided, by reviewing the impact of exchange rate of Yen on domestic interest rate since Japan took the floating exchange rate mechanism, especially after September of the year 1985, under the background of international coordination. Finally, this chapter provides the theoretical explanation of...