The long-run relationship between real exchange rates and real interest rate differentials: A panel study

Ronald Macdonald, Jun Nagayasu

Research output: Contribution to journalArticlepeer-review

50 Citations (Scopus)

Abstract

This paper empirically examines the long-run relationship between real exchange rates and real interest rate (RERI) differentials over the recent floating exchange rate period. A panel cointegration estimator is applied to a data set of 14 industrialized countries. In contrast to much other research on the RERI model, we find evidence of statistically significant long-run relationships and plausible point estimates. The failure of most other researchers to establish such relationships may therefore reflect the estimation method used rather than any inherent deficiency in the real exchange rate-real interest rate relationship.

Original languageEnglish
Pages (from-to)116-128
Number of pages13
JournalIMF Staff Papers
Volume47
Issue number1
Publication statusPublished - 2000 Dec 1
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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