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Interest Rate Spreads and Exchange Rate Variability


  • Andersen, Torben M
  • Sorensen, Jan Rose


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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    References listed on IDEAS

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    15. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
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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.

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