A Century Plus of Japanese Exchange-Rate Behavior

Examination of over a century's worth of annual data for Japan, the United States, the United Kingdom and France reveals a marked tendency for real exchange rates to return to their (measured) equilibrium values. The hypothesis that exchange-rate-adjusted price levels in these countries are not cointegrated is almost always rejected. Similar unit-root tests much more often than not reject the hypothesis of non-stationary (or non-trend-stationary) of real exchange rates. Analysis of earlier periods of floating yen rates - particularly the latter decades of the nineteenth century - points to an important link between monetary conditions and real exchange rate variability