The Exchange Rate and Interest Rate Differential Relationship: Evidence from Two Financial Crises
AbstractThis paper examines the contemporaneous and inter-temporal interaction between real exchange rate and real interest rate differential in the two financial crises of 1997 and 2008 by using data from thirteen countries from different world regions. The empirical result shows that negative contemporaneous relationship exists in most countries. In addition, there is little evidence on a systematic inter-temporal relationship between the real interest rate differential and the real exchange rate, and an absence of consistent result in supporting a negative relationship among the thirteen economies. An extremely low change in the conditional correlation between real interest rate differential and real exchange rates can be found in small countries.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35297.
Date of creation: Dec 2011
Date of revision:
Contemporaneous; inter-temporal relationship; exchange rate; interest rate differential; financial crisis;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
- NEP-MAC-2011-12-19 (Macroeconomics)
- NEP-OPM-2011-12-19 (Open Economy Macroeconomics)
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