Takashi Kano

Hitotsubashi University · Faculty of Economics/ Graduate School of Economics

This study examines the exchange rate implications of trend inflation within a two-country New Keynesian (NK) model. An NK Phillips curve generalized by trend inflation makes the inflation differential smoother, more persistent, and less sensitive to the real exchange rate. A Bayesian analysis with post-Bretton Woods data for Canada and the U.S. sh...

The minimal econometric interpretation (MEI) of DSGE models provides a formal model evaluation and comparison of misspecified nonlinear dynamic stochastic general equilibrium (DSGE) models based on atheoretical reference models. The MEI approach recognizes DSGE models as incomplete econometric tools that provide only prior distributions of targeted...

Trade costs contribute to price differentials across geographically separated regions. However, when using price differential data, the identification of distance-elastic trade costs depends on how producers set prices in remote markets. To address this problem, we first empirically demonstrate that a variable markup model is more relevant than a c...

This paper reconsiders the successful currency outcome of the first arrow of Abenomics. The Japanese yen depreciation against the U.S. dollar after the introduction of the first arrow co-moves tightly with long-term yield differentials between Japan and the United States. The estimated term structure of the sensitivity of the currency return of the...

The paper studies exchange rate implications of trend inflation within a two-country New Keynesian (NK) model under incomplete international financial markets. A NK Phillips curve generalized by trend inflation with a positive long-run mean implies an expectational difference equation of inflation with higher-order leads of expected inflation. The...

Engel and West (2005) claim that the observed near random-walk behavior of nominal exchange rates is an equilibrium outcome of a present-value model of a partial equilibrium asset approach when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one. Subsequent empirical studies further confirm...

The most prominent characteristic of the Japanese yen/U.S. dollar nominal exchange rate in the post-Plaza Accord era is near random-walk behavior sharing a common stochastic trend with the two-country monetary base differential augmented with excess reserves. In this paper, we develop a simple two-country incomplete-market model equipped with domes...

This paper critically reviews roles of dynamics stochastic general equilibrium (DSGE) models in macroeconometrics, introducing econometric categorizations of DSGE models made by Geweke (2010): strong, weak, and minimal econometric interpretations. As an application of the minimal interpretation, this paper introduces the Bayesian Monte Carlo exerci...

The purpose of this paper is to examine the role of multilateral adjustment to U.S. external imbalances in driving bilateral real exchange rate movements by developing a new regime-switching model that consists of a Markov-switching model with a time-varying transition matrix that depends on a threshold variable. Consequently, the dynamics of the r...

In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nominal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one. Subsequent empirical studies further confirm this propos...

In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nominal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one. Subsequent empirical studies further confirm this propos...

This study investigates the effect of distance on price differentials across regions. To identify the distance effect, we need to incorporate producer heterogeneity and pricing-to-market behavior. Because geographic barriers alter the threshold levels of productivity to set a positive price across markets, the effect of distance on price differenti...

This paper studies the implications of internal consumption habit for propagation and monetary transmission in new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian methods are employed to evaluate the role of internal consumption habit in NKDSGE model propagation and monetary transmission. Simulation experiments show that...

Rapid and significant appreciations of floating exchange rates, such as those experienced by the Australian, Canadian and New Zealand dollars in recent years, pose a number of challenges for central banks in formulating the optimal monetary policy response, if any. In particular, how the central bank should react critically depends on the underlyin...

Past studies in the literature of the law of one price (LOP) show statistically significant but economically subtle roles of geographical distance in regional price dispersions. In this paper, we challenge this empirical "death of distance" as a primary source of LOP violations investigating a unique daily data set of wholesale prices of agricultur...

Using a Monte Carlo approach, we evaluate the small-sample properties of four different tests of the present-value model (PVM) of the current account: the nonlinear Wald, linear Wald, Lagrange multiplier and likelihood ratio tests. We find that the nonlinear Wald test is biased towards over-rejecting the cross-equation restrictions implied by the P...

In a recent paper, Gruber (Gruber, J.W., 2004. A present value test of habits and the current account. Journal of Monetary Economics 51, 1495-1507) claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with co...

A recent paper claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM is observationally equivalent to the PVM augmented with p...

This paper investigates whether extending the intertemporal model of the current account to allow for variations in the terms of trade improves its ability to fit the data. It derives a testable present-value representation of the current account that encompasses the Harberger–Laursen–Metzler (HLM) effect, according to which a temporary rise in the...

A recent paper claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM is observationally equivalent to the PVM augmented with p...

In this paper, we empirically investigate whether multilateral adjustment to large U.S. external imbalances can help explain movements in the bilateral exchange rates of three commodity currencies -- the Australian, Canadian and New Zealand (ACNZ) dollars. To examine the relationship between exchange rates and multilateral adjustment, we develop a...

A recent paper claims that habit formation in consumption plays an important role in current ac-count ??ctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM is observationally equivalent to the PVM augmented with p...

Using a Monte Carlo approach, we evaluate the small-sample properties of four different tests of the present-value model (PVM) of the current account: the non-linear Wald, linear Wald, Lagrange multiplier, and likelihood ratio tests. We find that the non-linear Wald test is biased towards over-rejecting the cross-equation restrictions implied by th...

In a recent paper, Chang, Gomes, and Schorfheide (American Economic Review 2002, p. 1498-1520) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labor supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching perfor...

The intertemporal current account approach predicts that the current account of a small open economy is independent of global shocks, and that responses of the current account to country-specific shocks depend on the persistence of the shocks. This paper shows that these predictions impose cross-equation restrictions (CERs) on a structural vector a...

In a recent paper, Chang, Gomes, and Schorfheide (2002) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labour supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In th...

The inability of a wide array of dynamic stochastic general equilibrium (DSGE) models to generate fluctuations that resemble actual business cycles has lead to the use of habit formation in consumption. For example, habit formation has been shown to help explain the negative response of labour input to a positive, permanent technology shock, severa...

This paper investigates how “prices” in East Asian economies correlate with those in Japan and the United States. The analysis is particularly noteworthy because although the East Asian economies are geographically close to Japan, their currencies have been tied more closely to the U.S. dollar. In this paper, we analyze two different types of “pric...