Modeling Exchange rate -interest rate differential nexus in BRICS: The role asymmetry and structural breaks

Zainab Sani, Afees Salisu, Eucharia Onyia, Onyebuchi Anih and Lawrence Kanu

Economics and Business Letters, 2020, vol. 9, issue 2, 73-83

Abstract: This paper validates, with a linear model, the theoretical construction that specifies negative relationship between interest rate differential and exchange rate in the BRICS countries. Further probe with a nonlinear model reveals that exchange rate responds asymmetrically to interest rate differential in the countries. In all, we show that accounting for asymmetry and structural breaks enhance the relationship.

Date: 2020
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