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3 edition of The long-run relationship between real exchange rates and real interest rate differentials found in the catalog.

The long-run relationship between real exchange rates and real interest rate differentials

Ronald MacDonald

The long-run relationship between real exchange rates and real interest rate differentials

a panel study

by Ronald MacDonald

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  • 6 Currently reading

Published by International Monetary Fund, Monetary and Exchange Affairs Department in [Washington, D.C.] .
Written in English

    Subjects:
  • Foreign exchange rates.,
  • Interest rates.

  • Edition Notes

    Statementprepared by Ronald MacDonald and Jun Nagayasu.
    SeriesIMF working paper -- WP/99/37
    ContributionsNagayasu, Jun., International Monetary Fund. Monetary and Exchange Affairs Dept.
    The Physical Object
    Pagination12 p. ;
    Number of Pages12
    ID Numbers
    Open LibraryOL18758317M

    Although the real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we re-investigate the RERI relationship using bilateral U.S. real exchange rate data spanning the period to Cited by: 2. Real exchange rates and real interest differentials: A first look This section explores the link between real exchange rates and real interest rates over the recent floating-rate period. Using plots of the data and simple summary statistics, we investigate the following three questions. First, is the link.

      Therefore, in the long run, changes in relative inflation rates should lead to a change in the exchange rates. In the post-war period, the UK experience a higher inflation rate than Germany. This caused the Pound Sterling to depreciate against the German Mark. It was a reflection that German industry was becoming more competitive than UK industry. the real interest rate corresponding to this point is equal to the long-run real interest rate The slope of the monetary policy reaction curve is determined by: how aggressively policymakers change interest rates in response to deviations between current and.

    The project analyses the relationship between the real interest rate and real exchange rate. The project focuses on the Kenya economy and captures the period to This covers the period of both fixed and floating exchange rate regime. The high-frequency data used in the. In the long-run, a relationship between interest rate differentials and subsequent changes in spot exchange rate seems to exist but with considerable deviations in the short run (Hill, ). The international Fisher effect is known not to be a good predictor of short-run changes in spot exchange rates (Cumby & Obstfeld, ).


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The long-run relationship between real exchange rates and real interest rate differentials by Ronald MacDonald Download PDF EPUB FB2

The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study RONALD MACDONALD and JUN NAGAYASU* This paper empirically examines the long-run relationship between real exchange rates and real interest rate (RERI) differentials over the recent floating exchange rate period.

The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study RONALD MACDONALD and JUN NAGAYASU* This paper empirically examines the long-run relationship between real exchange rates and real interest rate (RERI) diJ%erentials over the recentfloating exchange rate period.

This paper empirically examines the long-run relationship between real exchange rates and real interest rate (RERI) differentials over the recent floating A panel cointegration estimator is applied to a data set of 14 industrialized by: Title: The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study - WP/99/37 Created Date: 4/7/ PM.

Long-run relationship between real exchange rates and real interest rate differentials. [Washington, D.C.]: International Monetary Fund, Monetary and Exchange Affairs Department, © (OCoLC) The International Monetary Fund (IMF) features the full text of the staff paper entitled "The Long-run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study," written by Ronald MacDonald and Jun Nagayasu.

The paper was published in the vol number 1, November issue of "IMF Staff Papers.". Despite the centrality of the theoretical relationship between real exchange rates and real interest rates differential in open economy macroeconomics, its empirical evidence, particularly when cointegration methods are used, is rather mixed.

The study uses IFS, IMF data for India and US for the period of M04 to MCited by: 1. This paper empirically examines the long-run relationship between real exchange rates and real interest rate differentials over the recent floating exchange rate period, using a panel cointegration method, with data for a set of industrialized countries.

This paper empirically examines the long-run relationship between real exchange rates and real interest rate (RERI) differentials over the recent floating exchange rate period. A panel cointegration estimator is applied to a data set of 14 industrialized countries.

Quarterly data of twenty three years for exchange rate, nominal interest rate, price, real output and money have been taken and vector autoregressive technique has been used. Evidence of exchange.

study investigates the long-run relationship between real exchange rates and real interest rate differentials using recently developed panel cointegration technique. Although this kind of relationship has been studied by a number of researchers,1 very little evidence in support of the relationship has been reported in the case of.

In this context, the real interest rate differential can be interpreted as the spread variable in a present-value model in which the discount factor is known and equal to one.

1 This allows us to take the projection for the change in the real exchange rate from a bivariate VAR, consisting of the change in the real exchange rate and the real Cited by: 1.

Introduction. This paper reexamines the relationship between real exchange rates and real interest differentials. It is widely believed that a link exists between these variables. 1 A number of studies, both theoretical and empirical, have considered the relationship.

On the theoretical side, sticky-price theories of exchange-rate determination predict an association between real exchange Cited by: The relationship that implies that the nominal interest rate is equal to the real interest rate plus expected inflation is called the A) exchange rate equation.

B) Fisher equation. C) interest rate equation. D) term structure of interest rates. The theoretical relationship of a long-run equilibrium relationship between real exchange rates and interest rate differentials is essentially derived from the Purchasing Power Parity (PPP) and.

The long-run relationship between real exchange rates and real interest rate differentials is further reaffirmed by the Johansen’s multivariate tests Johansen and Juselius () with imposing various lag length as suggested by a set of information criterions (see.

The Relationship between Exchange Rates and Interest Rate Differentials: a Wavelet Approach. Scott Hacker, Hyunjoo Kim, and Kristofer Månsson. Department of Economics. Jönköping International Business School (JIBS) P.O. Box SE Jönköping, Sweden.

This Version. In this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom.

Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship Cited by: Indeed, supply empirical clues that both interest rates and exchange rates are cost in the stock market for US banks.

(Collin,70) Discussion Interest rate and exchange rate changes have been shown to exactly sway the incomes and charges of financial institutions. Uncovered interest parity has found little empirical support at short cting expected inflation differentials from both sides of the uncovered interestparity relationship implies a similar relationship between real interest rate differentials and expected real exchange rate by: 7.

Real exchange rate is highly affected by the change in the exchange rate in the global market. How to calculate Real exchange rate: The formula of real exchange rate: For E.g.

If the 1 Kg Price of tea in India is Rs and suppose the Price for the same unit in the Dubai is 15 Dhiram. The Exchange rate is 1 Dhiram = Rs Nominal. Suppose you had a third country UK with inflation of 4% and interest rate of 4%. real interest rate = 0%; This is the same real interest rate as India.

However, in this situation, it would be advisable to invest in UK pounds because a lower inflation rate suggests greater stability. Inflation of 8% in India suggests greater volatility. In the long run the real exchange rate has a statistically significant positive effect on foreign exchange reserves.

The coefficient on the real interest rate differential is also positive, but is statistically by: