EXCHANGE RATE AND INTEREST RATE DIFFERENTIAL IN G7 ECONOMIES

Peter Golit (), Afees Salisu, Akinwunmi Akintola (), Faustina Nsonwu () and Itoro Umoren ()
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Peter Golit: Central Bank of Nigeria
Akinwunmi Akintola: Central Bank of Nigeria
Faustina Nsonwu: Central Bank of Nigeria
Itoro Umoren: Central Bank of Nigeria

Bulletin of Monetary Economics and Banking, 2019, vol. 22, issue 3, 263-286

Abstract: We offer new insights on the dynamics of the exchange rate-interest rate differential for the case of G7 economies. We show that the nexus is better considered using an asymmetric model, as suggested by a host of previous studies. In addition, we find the role of accounting for structural breaks to be prominent. We also show differences in the nexus between euro and non-euro G7 countries, suggesting heterogeneous monetary policies. Thus, we document the strongest evidence for the sticky price hypothesis in Japan and lesser evidence in the euro countries and the United Kingdom, with Canada consistently revealing evidence for the flexible price hypothesis.

Keywords: G7 countries; asymmetry; Structural break; Exchange rate; Interest rate differential (search for similar items in EconPapers)
JEL-codes: E43 F21 F31 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:22:y:2019:i:3b:p:263-286

DOI: 10.21098/bemp.v22i3.1147

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