Nominal Exchange Rates and Nominal Interest Rate Differentials:

This paper reexamines some unsettled theoretical and empirical issues regarding the relationship between nominal exchange rates and interest rate differentials and provides a model for the behavior of exchange rates in the long run, where interest rates are determined in the bond market. The model p...

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Bibliographic Details
Main Author: Nadal-De Simone, Francisco (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 1999
Series:IMF Working Papers Working Paper No. 99/141
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Summary:This paper reexamines some unsettled theoretical and empirical issues regarding the relationship between nominal exchange rates and interest rate differentials and provides a model for the behavior of exchange rates in the long run, where interest rates are determined in the bond market. The model predicts that an increase in the interest rate differential appreciates the home currency. We test the model for the U.S. dollar against the Deutsche mark, the British pound, the Japanese yen, and the Canadian dollar. The first two pairs of exchange rates-for which purchasing power parity seems to hold-display a strong relationship with interest rate differentials
Physical Description:1 Online-Ressource (41 p)
ISBN:1451856164
9781451856163

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