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Study the relationship between real exchange rate and interest rate differential – United States and SwedenWang, Zhiyuan January 2007 (has links)
This paper uses co-integration method and error-correction model to re-examine the relationship between real exchange rate and expected interest rate differentials, including cumulated current account balance, over floating exchange rate periods. As indicated by the dynamic model, I find that there is a long run relationship among the variables using Johansen co-integration method. Final conclusion is that the empirical evidence is provided to show that our error-correction model leads to a good real exchange rate forecast.
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Study the relationship between real exchange rate and interest rate differential – United States and SwedenWang, Zhiyuan January 2007 (has links)
<p>This paper uses co-integration method and error-correction model to re-examine the relationship between real exchange rate and expected interest rate differentials, including cumulated current account balance, over floating exchange rate periods. As indicated by the dynamic model, I find that there is a long run relationship among the variables using Johansen co-integration method. Final conclusion is that the empirical evidence is provided to show that our error-correction model leads to a good real exchange rate forecast.</p>
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Is the European Monetary Union an optimal currency area? An empirical analysis of interest rate and inflation differentials across the Eurozone / Je evropská měnová unie optimální měnovou oblastí? Empirická analýza úrpkových a inflačních diferenciálů v eurozóněGúth, Ondřej January 2015 (has links)
The economic crisis of 2008 had substantial impacts on the global economy. The European Monetary Union was affected as well, however, the economic impacts also stirred up political discussions concerning functioning of the European Union and its unity as divergence of economic means among the member countries intensified during the crisis. Inflation and real interest rate differentials have to substantial degree the ability to measure the divergence among the member countries of a monetary union. A number of empirical studies measuring the differentials in the Euro area were conducted since the start of the financial crisis in 2008. These studies show growing inflation and real interest rate differentials among the countries of the Euro area, argue that the European Monetary Union is becoming less stable and often question its future. This paper conducts similar empirical analysis; however, it differs from the above mentioned works of other authors by the larger time gap between the start of financial crisis and the time of conducting the analysis as it uses data until the year of 2013. This paper also contributes to current literature by the methodology it uses. The inflation and interest rate differentials in EMU are calculated by two methods and their results are subsequently compared, which has not been done before. The inflation and interest rate differentials are calculated for the USA as well in order to have an entity which can be considered as a hypothetical optimum currency area and to which the differentials of EMU could be compared. The results of the analysis in this paper will state whether the magnitude of inflation and interest rate differentials is too high and it will also either confirm the trend of divergence of inflation and real interest rates within the Euro area or show that this divergence is only a short-time period phenomenon of after-crisis years. As this is an important and very recent issue of European Monetary Union the results of this paper should form interesting contribution to current literature on this topic.
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Real Exchange Rates And Real Interest Rate Differentials: An Empirical InvestigationCan Mutan, Oya 01 September 2005 (has links) (PDF)
This study investigates the validity of the real exchange rate-real interest rate differential (RERI) relationship for a sample of twenty-three developing and developed countries. The results based on the Johansen cointegration analysis suggest the validity of the long-run RERI relationship only for a small number of countries including Canada, Italy, Switzerland, Belgium, Chile, Israel and Norway. Real interest rate differentials are found to be positively associated with real exchange rates in the long-run for every country except Israel. The results of the weak exogeneity tests suggest that real exchange rates are the adjusting variables for Italy, Switzerland, Belgium and Israel. Consistent with an endogenous response of domestic interest rates to a real exchange rate shock policy rule, real interest rate differentials are found to be endogenous for the parameters of the cointegration vector for Canada, Chile and Norway.
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[pt] DETERMINANTES MACROECONÔMICOS E REGULATÓRIOS DOS DESVIOS DE PARIDADE COBERTA DA TAXA DE JUROS / [en] MACROECONOMIC AND REGULATORY DRIVERS OF CIP DEVIATIONSRAPHAEL DE OLIVEIRA VASCONCELOS 04 July 2022 (has links)
[pt] Desvios de Paridade Coberta da Taxa de Juros (CIP) têm sido amplos
e persistentes, entre economias do G10, desde a crise financeira mundial de
2008. Uma das explicações para a quebra na relação de paridade (CIP)
são as novas regulações bancárias que surgiram no período pós-crise. Por
outro lado, desvios de CIP na economia brasileira têm sido associados ao
índice EMBI+, que é uma medida de risco país, tal como em Garcia and
Didier (2003). A partir da literatura recente sobre desvios de CIP (i.e., a
currency basis) entre as economias do G10, eu mostro a evolução recente da
cross-currency basis para essas economias, durante a pandemia de 2020, e
então eu estudo os determinantes macroeconômicos e regulatórios da basis
do Real. Usando a estratégia empírica de Cerutti et al (2021), eu encontro
que o bid-ask spread (medida de liquidez) do dólar futuro tem um efeito
proeminente. Em uma abordagem de diferença-em-diferenças, eu encontro
que a basis brasileira sobe aos finais de trimestres, coincidindo com o período
em que os contratos futuros aparecem no balanço patrimonial dos bancos.
Tal evidência sugere um efeito causal de regulação bancária na currency
basis, em linha com Du, Tepper and Verdelhan (2018). / [en] Covered Interest Parity deviations (CIP) have been large and persistent
among G10 currencies since the global financial crisis in 2008. One of
the explanations for the CIP condition breakdown are the new banking
regulations that arose in the post-crisis period. On the other hand, CIP
deviations for the Brazilian economy have been associated with the EMBI+
index, which is a measure of country risk, as in Garcia and Didier (2003).
Building on the recent literature on Covered Interest Parity deviations (i.e,
the currency basis) among G10 currencies, I show the recent evolution of
the cross-currency basis for the G10 economies, during the 2020 pandemic
crisis, and then I study the macroeconomic and regulatory drivers of the
Brazilian currency basis. Using the regression approach of Cerutti et al
(2021), I find that the FX bid-ask spread has a prominent effect on the
real/dollar basis. Using a difference-in-differences approach, I find that the
Brazilian currency basis rises at quarter-ends, which is the period when
forward contracts appear on banks balance sheets. This points to a causal
effect of banking regulation on the currency basis, in line with Du, Tepper
and Verdelhan (2018).
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