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Analysis of the asymmetric response of exchange rate to interest rate differentials: Evidence from the MINT countries

Dinci Penzin () and Afees Salisu ()
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Dinci Penzin: Research Department, Central Bank of Nigeria

Economics Bulletin, 2020, vol. 40, issue 2, 938-943

Abstract: The asymmetric response of exchange rate to interest rate differential is empirically examined for the MINT countries. Consequently, we formulate a nonlinear autoregressive distributed lag model that accounts for asymmetries and structural breaks. We find that exchange rate responds asymmetrically to interest rate differential both in the long run and short run. Our results lend support to the sticky price hypothesis to justify the use of conventional policy tools for short run stabilisation. The same is established for the long run to drive in foreign investment flows. We argue contrarily for unconventional policies in Nigeria to correct short run fluctuations and to encourage long run investment flows given the positive relationship obtained in both time horizons.

JEL-codes: G2 E1 (search for similar items in EconPapers)
Date: 2020-04-15
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