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Interest Rates and Exchange Rate Relationship in BRIC-T Countries

  • Selim KAYHAN

    ()

    (Bozok University, Faculty of Business and Administration, Department of Economics)

  • Tayfur BAYAT

    ()

    (Inonu University, Faculty of Business and Administration, Department of Economics)

  • Ahmet UGUR

    ()

    (Inonu University, Faculty of Business and Administration, Department of Economics)

Registered author(s):

    This study examines the dynamic relationships between the real exchange rate and the real interest rate in the BRIC-T (Brazil, Russia, India, China and Turkey) countries by employing monthly data from the beginning of flexible exchange rate regime to July 2011. For this aim, non-linear causality test and frequency domain causality test approaches are used. According to frequency domain causality test results, interest rate affects exchange rate in only China and this effect exist only in the long run. On the other hand, exchange rate shocks induce changes in interest rate in the shorter period.

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    Article provided by Ege University Faculty of Economics and Administrative Sciences in its journal Ege Academic Review.

    Volume (Year): 13 (2013)
    Issue (Month): 2 ()
    Pages: 227-236

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    Handle: RePEc:ege:journl:v:13:y:2013:i:2:p:227-236
    Contact details of provider: Web page: http://iibf.ege.edu.tr/ENG/

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    1. Hong, Yongmiao, 2001. "A test for volatility spillover with application to exchange rates," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 183-224, July.
    2. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
    3. Hnatkovska, Viktoria & Lahiri, Amartya & Vegh, Carlos A., 2013. "Interest rate and the exchange rate: A non-monotonic tale," European Economic Review, Elsevier, vol. 63(C), pages 68-93.
    4. Mark, Nelson C. & Choi, Doo-Yull, 1997. "Real exchange-rate prediction over long horizons," Journal of International Economics, Elsevier, vol. 43(1-2), pages 29-60, August.
    5. Hakkio, Craig, 1986. "Does the exchange rate follow a random walk? A Monte Carlo study of four tests for a random walk," Journal of International Money and Finance, Elsevier, vol. 5(2), pages 221-229, June.
    6. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
    7. Goderis, Benedikt & Ioannidou, Vasso P., 2008. "Do high interest rates defend currencies during speculative attacks New evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 158-169, January.
    8. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate; A Stock-Flow Perspective," IMF Working Papers 94/90, International Monetary Fund.
    9. Mohamed Essaied Hamrita & Abdelkader Trifi, 2011. "The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 220-228.
    10. Hacker, Scott & Kim, Hyunjoo & Månsson, Kristofer, 2010. "An Investigation of the Causal Relations between Exchange Rates and Interest Rate Differentials Using Wavelets," Working Paper Series in Economics and Institutions of Innovation 215, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    11. Hiemstra, Craig & Jones, Jonathan D, 1994. " Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-64, December.
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