Journal article
Short-Term Interest Rates, Price Expectations, and Exchange Rate Movements
RBER, review of business and economic research, v 19(1), pp 26-37
01 Oct 1983
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
A monetary model of exchange rate determination is constructed and tested in an attempt to explain the paradoxical relationship between the exchange rate and the short-term interest rate differential. The model identifies the 2 components of the influence of the short-term interest rate differential on the exchange rate: a short-run inflation expectation component and a portfolio component. Monthly data for the period 1975-1979 are used to estimate the exchange rate movements in the UK, Canada, France, Germany, Italy, and the Netherlands, with the US acting as the reference country. Empirical tests confirm the main propositions of the monetary approach to exchange rate determination: 1. A relative increase in the money supply will cause currency depreciation. 2. A relative rise in real income will lead to currency appreciation. 3. A relative rise in the long-term interest rate differential will cause currency depreciation. Canada is the sole exception to this proposition.
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Details
- Title
- Short-Term Interest Rates, Price Expectations, and Exchange Rate Movements
- Creators
- Thomas Chiang
- Publication Details
- RBER, review of business and economic research, v 19(1), pp 26-37
- Publisher
- University of New Orleans, Business and Economic Research
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- [Retired Faculty]
- Web of Science ID
- WOS:A1983SH44200003
- Other Identifier
- 991019183950604721
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- Web of Science research areas
- Business, Finance
- Economics