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Interest Rate Spreads and Exchange Rate Variability

Author

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  • Andersen, Torben M
  • Sorensen, Jan Rose

Abstract

Interest rate spreads in excess of those predicted by the uncovered interest rate parity condition are commonly observed. The pricing of exchange rate risk must be analyzed in order to understand international interest rate differentials. Moreover, it may also be important in order to evaluate how the establishment of a European Monetary Union affects real rates of interest. The authors show that risk premia depend on a country's consumption pattern, attitudes towards risk, competitive position, size, and debt position. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Andersen, Torben M & Sorensen, Jan Rose, 1994. "Interest Rate Spreads and Exchange Rate Variability," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(2), pages 151-166, June.
    • Handle: RePEc:bla:manch2:v:62:y:1994:i:2:p:151-66
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    Cited by:

    1. Darvas, Zsolt, 1996. "Kamatkülönbség és árfolyam-várakozások az előre bejelentett kúszó árfolyamrendszerben [Interest differential and exchange rate expectations in the preannounced crawling band system of Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 920-947.
    2. Barabás, Gyula, 1996. "Kamatparitás lebegő és csúszó leértékeléses árfolyamrendszerben [Interest parity in floating and in crawling-peg foreign exchange rate régimes]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 972-994.

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