e-ISSN 2231-8542
ISSN 1511-3701

Home / Regular Issue / JTAS Vol. 4 (2) Sep. 1996 / JSSH-0074-1996


Currency Substitution via Expected Exchange Rate and Domestic Money Demand: An Empirical Analysis for Japan

T. Chotigeat and Sang H. Lee

Pertanika Journal of Tropical Agricultural Science, Volume 4, Issue 2, September 1996

Keywords: Currency substitution, expected exchange rate, domestic money demand, Japanese currency

Published on:

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.

ISSN 1511-3701

e-ISSN 2231-8542

Article ID


Download Full Article PDF

Share this article

Recent Articles