The Dollar and Real Interest Rates
John Campbell and
Richard Clarida
No 2151, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
In this paper, we investigate the link between the real foreign exchange value of the dollar and real interest rates since 1979. We argue that it is important to consider the possibility that real exchange rate movements reflect movements of the long-run equilibrium exchange rate as well as real interest differentials. We use a state-space approach to estimate the importance of shifts in the long-run equilibrium exchange rate, the persistence of the ex ante short-term real interest differential, and the effect of this differential on the exchange rate. Using U.S., Canadian, British, German and Japanese data from October 1979 to March 1986, we find that movements in the dollar real exchange rate have been dominated by unanticipated shifts in the expected long-run real exchange rate. Ex ante real interest differentials have not been persistent or variable enough to account for a major part of exchange rate variation. We use Mussa's (1984) rational expectations model of the real exchange rate and the current account to interpret our results.
Date: 1987-02
Note: ME ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (105)
Published as Campbell, John Y. and Richard M. Clarida. "The Dollar and Real Interest Rates," Carnegie-Rochester Conference Series on Public Policy, Vol. 27, August 1987.
Downloads: (external link)
http://www.nber.org/papers/w2151.pdf (application/pdf)
Related works:
Journal Article: The dollar and real interest rates (1987) 
Working Paper: The Dollar and Real Interest Rates (1987) 
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:nbr:nberwo:2151
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2151
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().