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Ppp, Random Walks, And Uip After Interest Rate Liberalisation In A Small Developing Economy

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Author Info
José R. Sánchez-Fung () (Central Bank of the Dominican Republic, and Kingston University)
Peter A. Prazmowski () (Central Bank of the Dominican Republic)

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Abstract

This paper investigates the impact of interest rate liberalisation on exchange rate expectations in the Dominican Republic (DR). The research employs a nested purchasing power parity, random walk, and uncovered interest parity specification that facilitates the recovery of the fundamentals behind the exchange rate expectations formation mechanism. The findings reveal that the most significant driver of exchange rate expectations is the interest rate differential between the DR and its main trading partner -the United States. These results are of relevance for the design and implementation of financial reforms and exchange rate policy alike, and in anticipating abrupt exchange rate movements.

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File URL: http://www.economicsbulletin.com/2004/volume6/EB-03F40001A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 6 (2004)
Issue (Month): 1 ()
Pages: 1-7
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:6:y:2004:i:1:p:1-7

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Related research
Keywords: Interest rate liberalisation; exchange rate expectations; PPP/UIP; Dominican Republic.;

Find related papers by JEL classification:
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Svensson, Lars E. O., 1992. "The foreign exchange risk premium in a target zone with devaluation risk," Journal of International Economics, Elsevier, vol. 33(1-2), pages 21-40, August. [Downloadable!] (restricted)
    Other versions:
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May. [Downloadable!] (restricted)
    Other versions:
  3. Juselius, Katarina, 1995. "Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model," Journal of Econometrics, Elsevier, vol. 69(1), pages 211-240, September. [Downloadable!] (restricted)
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This page was last updated on 2009-12-12.

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