Exchange-Rate Expectations and Nominal Interest Differentials: A Test ofthe Fisher Hypothesis

Robert Cumby () and Maurice Obstfeld

No 537, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period. This proposition, often called the "Fisher open" hypothesis or the hypothesis of perfect asset substitutability, has been a major component of recent theories of exchange-rate determination, and has important implications for monetary policy.

Date: 1980-08
Note: ITI IFM
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Published as Cumby Robert E. and Obstfeld, Maurice. "A Note on Exchange-Rate Expectations and Nominal Interest Differentials: A Test of the Fisher Hypothesis." The Journal of Finance, Vol. XXXVI, No. 3, (June 1981), pp. 697-703.

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