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

March 1, 1999

Preview Citation

Format: Chicago

Jun Nagayasu, and Ronald MacDonald. The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study, (USA: International Monetary Fund, 1999) accessed November 21, 2024

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.

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

Keywords: ADF statistics, Currencies, Exchange rate relationship, Exchange rate-real interest rate differential, Exchange rates, Exchange Rates-Long-Run interest rates, Integration method, Integration test, Long term interest rates, Math, Method of Johansen, Panel ADF statistic, Panel cointegration, Real exchange rates, Real interest rates, WP

Publication Details

Pages:

12
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/037
Stock No:

WPIEA0371999
ISBN:

9781451845556
ISSN:

1018-5941

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