University of Arkansas, Fayetteville


This research sought to find an economically justifiable relationship between non-traditional monetary policies of the Bank of Japan and the Federal Reserve and the dollar/yen exchange rate. This research utilized the covered interest parity condition in conjunction with a partial least squares structured equation analysis in order to discern any possible relationships between these two phenomenon. A solid relationship between the non-traditional monetary policies of these central banks and dollar/yen exchange rate was found. In order to analyze significance, direction, and nature of this relationship this research followed up the partial least squares analysis with bootstrap structural equation modeling. Because of the linear nature of this method of evaluating relationships, it was difficult for this research to discern a consistent and significant pattern in the relationships found in the partial least squares analysis. Future research into this topic should be directed towards exactly identifying the nature and method for which these policies affect the exchange rate.