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Interest Rates and the Exchange Rate: Some international Evidence


  • Monadjemi, M. S.


This paper attempts to examine the behaviour of the exchange rate in response to a change in interest rate differential. The empirical results of the study based on mounthly data from Britain, Canada, Germany and Japan provide support for Dornbusch's "overshooting" exchange rate in the short-run. However, in contrast to Dornbusch's proposition, thethe hypothesis of purchasing power parity is not empirically supported and the real exchange rates appeared to be non-stationary in all four cases.

Suggested Citation

  • Monadjemi, M. S., 1997. "Interest Rates and the Exchange Rate: Some international Evidence," Papers 97/9, New South Wales - School of Economics.
  • Handle: RePEc:fth:nesowa:97/9

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    References listed on IDEAS

    1. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, vol. 70(2), pages 207-236, November.
    2. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
    3. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
    4. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    5. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
    6. Barry J. Nalebuff & Richard J. Zeckhauser, 1985. "Pensions and the Retirement Decision," NBER Chapters,in: Pensions, Labor, and Individual Choice, pages 283-316 National Bureau of Economic Research, Inc.
    7. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
    8. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    9. Gary S. Fields & Olivia S. Mitchell, 1984. "Retirement, Pensions, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262060914, January.
    10. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    11. John B. Burbidge & A. Leslie Robb, 1980. "Pensions and Retirement Behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 421-437, August.
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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F31 - International Economics - - International Finance - - - Foreign Exchange


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