RESEARCH ON THE JAPANESE YEN Paper Example | Topics and Well Written Essays - 2000 words

ON THE JAPANESE YEN - Research Paper Example Precisely, this theory argues that a unit current, for instance, the Yen must have the same purchasing power in a foreign country. The study uses the Japanese Yen together with other currencies in testing the PPP hypothesis and focuses on the empirical analysis from 1980 up to March 2013. This period is divided into three windows. The first window is what is referred to as the complete sample; the pre-crisis sample, which began in January 1980 and ended in August 2008, is the second window. The third window is referred to as the crisis sample, starting from September 2008 up to March 2013. The Japanese Yen among other currencies such as the Euro, the British pound and the U.S dollar are key currencies of the recent floating exchange rate period. In this regard, the first step of the study was to check for the stability of the real exchange rate prior to and after Lehman Brother’s crash in 2008. The empirical results showed that the real exchange rate is not constant for Japane se yen. For a proper evaluation of the problem under study this paper will comprise of various sections, including a brief literature review, the econometric methodology, data and empirical evidence, and lastly a summary of the findings and concluding remarks. The purchasing power theory dates back to several centuries ago, beginning with the Spanish doctors and the ‘Salamanca School’ of the 16th century who had crucial contributions to the economic theory (Laurentiu). They designed a quantitative money theory of the foreign exchange, which was based on diversity in purchasing power in various countries from observing the general effects on price levels, exchange rates and money supplies of large inflows of gold from the newly discovered continent, America. The celebrated Augustinian doctor, called ‘Doctor Navarrus came up with some outstanding contributions in