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

Jun Nagayasu and Ronald MacDonald

No 1999/037, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; math; ADF statistics; integration method; Real exchange rates; real interest rates; panel cointegration; exchange rate-real interest rate differential; panel ADF statistic; exchange Rates-Long-Run interest rates; method of Johansen; exchange rate relationship; integration test; Exchange rates; Long term interest rates; Currencies (search for similar items in EconPapers)
Pages: 12
Date: 1999-03-01
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Citations: View citations in EconPapers (28)

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Journal Article: The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study (2000)
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