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Modeling Interest Rate Parity: A System Dynamics Approach

Author

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  • John Harvey

    (Department of Economics, Texas Christian University)

Abstract

The purpose of this paper is to show the superiority of Keynes’ approach by comparing three system dynamics models of the relationship among interest and exchange rates: one based on traditional uncovered interest rate parity, one with risk, and one with forecast confidence. It will be demonstrated that only the last produces patterns consistent with those observed in the real world.

Suggested Citation

  • John Harvey, 2005. "Modeling Interest Rate Parity: A System Dynamics Approach," Working Papers 200502, Texas Christian University, Department of Economics.
    • Handle: RePEc:tcu:wpaper:200502
    as

    Download full text from publisher

    File URL: http://www.econ.tcu.edu/RePEc/tcu/wpaper/wp05-02.pdf
    File Function: First version, 2005
    Download Restriction: no
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    References listed on IDEAS

    as
    1. John T. Harvey, 2004. "Deviations from uncovered interest rate parity: a Post Keynesian explanation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(1), pages 19-35.
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    Citations

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    Cited by:

    1. Cristian PAUN, 2012. "International Financing Decision: A Managerial Perspective," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(3), pages 411-425, July.
    2. Nassif, André & Feijó, Carmem Aparecida & Araújo, Eliane, 2017. "A structuralist-Keynesian model for determining the optimum real exchange rate for Brazil’s economic development process: 1999-2015," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    3. André Nassif & Carmem Feijó & Eliane Araújo, 2011. "The trend of the real exchange rate overvaluation in open emerging economies: the case of Brazil," Working Papers 0111, Universidade Federal do Paraná, Department of Economics.
    4. Deebii Nwiado & Lezaasi LeneeTorbira, 2016. "A Panel Data Analysis of the Validity of Uncovered Interest Rate Parity (UIRP) in Selected African Countries," Research in World Economy, Research in World Economy, Sciedu Press, vol. 7(2), pages 15-25, December.

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    More about this item

    Keywords

    exchange rates; interest rate parity; system dynamics; institutionalist;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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