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Does the World Real Interest Rate Affect the Real Exchange Rate? The South East Asian Experience

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  • Karine Gente
  • Miguel Leon-Ledesma

    ()

Abstract

We analyse the consequences of US real interest rate rises on the real exchange rate (RER) in a two-good overlapping generations model of a semi-small open economy. The equilibrium RER depreciates (appreciates) when the world interest rate increases in a debtor (creditor) country. We then study empirically the reaction of the RER in a set of South East Asian (SEA) countries to shocks in US real interest rates. The results support the conclusions of the theory model at least for Singapore, Thailand and South Korea during the period 1980-2001.

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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0405.

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Date of creation: May 2004
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Handle: RePEc:ukc:ukcedp:0405

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Real exchange rate; overlapping generations; world interest rate shock;

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Cited by:
  1. Aloy, Marcel & Gente, Karine, 2009. "The role of demography in the long-run Yen/USD real exchange rate appreciation," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 654-667, December.

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