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Interest Rates and Exchange Rates in Normal and Crisis Times

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  • Forti Grazzini, Caterina
  • Rieth, Malte

Abstract

The paper studies the relation between the US-Dollar/Euro exchange rate and US and euro area interest rates during normal and crisis times. We describe each asset price within a multifactor model and identify the causal contemporaneous relations through heteroskedasticity. We find that US rates and macroeconomic conditions dominate exchange rate and interest rate movements before and during the global financial crisis, while this pattern sharply reverses during the European debt crisis.

Suggested Citation

  • Forti Grazzini, Caterina & Rieth, Malte, 2017. "Interest Rates and Exchange Rates in Normal and Crisis Times," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168281, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc17:168281
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets

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