Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Exchange Rate and Interest Rate Differential Relationship: Evidence from Two Financial Crises

Contents:

Author Info

  • Li, Kui-Wai
  • Wong, Douglas K T

Abstract

This 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/35297/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35297.

as in new window
Length:
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:pra:mprapa:35297

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Contemporaneous; inter-temporal relationship; exchange rate; interest rate differential; financial crisis;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Engle, Robert F & Sheppard, Kevin K, 2001. "Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt5s2218dp, Department of Economics, UC San Diego.
  2. Hoffmann, Mathias & MacDonald, Ronald, 2009. "Real exchange rates and real interest rate differentials: A present value interpretation," European Economic Review, Elsevier, Elsevier, vol. 53(8), pages 952-970, November.
  3. MacDonald, Ronald, 1998. "What determines real exchange rates?: The long and the short of it," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 8(2), pages 117-153, June.
  4. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  5. Coughlin, C.C. & Koedijk, C.G., 1990. "What do we know about the long run real exchange rate?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108738, Tilburg University.
  6. Hali J. Edison & B. Dianne Pauls, 1991. "Re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 408, Board of Governors of the Federal Reserve System (U.S.).
  7. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  8. Edison, Hali J & Melick, William R, 1999. "Alternative Approaches to Real Exchange Rates and Real Interest Rates: Three Up and Three Down," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 4(2), pages 93-111, April.
  9. Anna J. Schwartz, 2009. "Origins of the Financial Market Crisis of 2008," Cato Journal, Cato Journal, Cato Institute, Cato Journal, Cato Institute, vol. 29(1), pages 19-23, Winter.
  10. Robert Sollis & Mark E. Wohar, 2006. "The real exchange rate-real interest rate relation: evidence from tests for symmetric and asymmetric threshold cointegration," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(2), pages 139-153.
  11. Allan H. Meltzer, 2009. "Reflections on the Financial Crisis," Cato Journal, Cato Journal, Cato Institute, Cato Journal, Cato Institute, vol. 29(1), pages 25-30, Winter.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35297. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.