On the equality of real interest rates across borders in\ud integrated capital markets

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Minford, Patrick ; Peel, David ; Cardiff University (2005)
  • Publisher: Cardiff University
  • Subject: HB

The purpose in this letter is first to review briefly the empirical results on the relationship between real interest rates and real exchange rates; this empirical literature provides little support for the hypothesis of Roll that expected real interest rates are equal in general. Our second aim is to discuss the theoretical conditions that have to be met for his hypothesis to hold.
  • References (15)
    15 references, page 1 of 2

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    [2] Baxter, M. (1994), “Real Exchange Rates and Real Interest Rate Differentials: Have we Missed the Business Cycle Relationship?”, Journal of Monetary Economics 33:1, 5-37.

    [3] Cheung YW, Lai KS. (2000), “On cross-country differences in the persistence of real exchange rates”, Journal of International Economics 50, 375-397.

    [5] Diebold, F.X., S. Husted and M. Rush (1991), “Real exchange rates under the gold standard”, Journal of Political Economy 99, 1252-1271.

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    [7] Dutton, Marilyn M. (1993), “Real Interest Rate Parity New Measures and Tests”, Journal of International Money and Finance 12, 62-77.

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    [9] Edison, H.J. and Melick, W.R. (1999), “Alternative Approaches to Real Exchange Rates and Real Interest Rates: Three Up and Three Down”, International Journal of Finance and Economics 4, 93-111

    [10] Hoffmann, R. and Macdonald, R. (2003), “A Re-examination of the link between Real Exchange Rates and Real Interest Rate Differentials”, Strathclyde Discussion Paper.

    [11] Lai, K.S. (1997), “Long-term Persistence in the Real Interest Rate: Some Evidence of a Fractional Unit Root”, International Journal of Finance and Economics 2, 225-235.

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