Financial Flows, Interest Rates and Exchange Rates

Anthony Makin

Chapter 5 in Global Finance and the Macroeconomy, 2003, pp 85-106 from Palgrave Macmillan

Abstract: Abstract This chapter introduces a new economy-wide framework for interpreting international interest differentials. It is based on borrowing and lending behaviour in small economies whose domestic capital markets have become more integrated with global capital markets. Using extended loanable funds analysis, the framework reconciles the main financial relations that link domestic and foreign interest rate — the Fisher effect, purchasing power parity and uncovered interest parity. It also shows that the reaction of foreign lenders to factors influencing an economy’s creditworthiness is central to determining interest risk premia and how changing exchange rate expectations affect international interest differentials through borrowing and lending behaviour.

Keywords: Exchange Rate; Interest Rate; Purchase Power Parity; Current Account Deficit; Change Exchange Rate (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50403-5_5

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230504035

DOI: 10.1057/9780230504035_5

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().