The portfolio balance effect: an empirical
analysis for Japan and Eurozone
Μηνασιάν, Νάντια
Καρφάκης, Κωνσταντίνος
Διατμηματικό Πρόγραμμα Μεταπτυχιακών Σπουδών στην Οικονομική Επιστήμη
In this study the validity of the portfolio balance model in the short and in the long
run for the Yen-U.S. dollar and Euro- U.S. dollar exchange rate is examined which is
based on the Branson and Henderson specification. A distinguishing feature of the portfolio balance model among exchange rate models is the assumption of imperfect
substitutability between domestic and foreign assets. The econometric method used
here is the dynamic OLS approach which corrects for regressor endogeneity and is a
robust method implemented in small samples. Furthermore, the stationarity of the
variables is examined by unit root and stationary tests.
