The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study

Author/Editor:

Jun Nagayasu ; Ronald MacDonald

Publication Date:

March 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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. The paper finds evidence of statistically significant long-run relationships and plausible point estimates, which contrasts with much existing evidence. The failure of others to establish such relationships may reflect the estimation method they use rather than any inherent deficiency of the fundamentals-based models.

Series:

Working Paper No. 1999/037

Subject:

Currencies Exchange rates Financial services Foreign exchange Long term interest rates Money Real exchange rates Real interest rates

English

Publication Date:

March 1, 1999

ISBN/ISSN:

9781451845556/1018-5941

Stock No:

WPIEA0371999

Pages:

12

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