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Minford, Patrick; Peel, David; Cardiff University (2005)
Publisher: Cardiff University
Languages: English
Types: Book
Subjects: 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.
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    • [1] Acosta, F.M.A., and C.W.J. Granger (1995), “A linearity test for near for near-unit root time series”, Discussion paper no. 95-12, University of California San Diego, San Diego, CA.
    • [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.
    • [6] Diebold, F.X., Inoue, A. (2001), “Long memory and regime switching”, Journal of Econometrics 105, 131-159.
    • [7] Dutton, Marilyn M. (1993), “Real Interest Rate Parity New Measures and Tests”, Journal of International Money and Finance 12, 62-77.
    • [8] Edison, Hali, and B. Dianne Pauls (1993), “A Re-Assessment of the Relationship Between Real Exchange Rates and Real Interest Rates: 1974- 1990”, Journal of Monetary Economics 31, 165-187.
    • [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.
    • [12] MacDonald, R. and J Nagayasu (2000), “The Real Exchange Rate Real Interest Rate Relationship: A Panel Perspective”, IMF Staff Papers, 47:1, 116-128.
    • [13] Michael, P., A.R. Nobay and D.A. Peel (1997), “Transactions costs and nonlinear adjustment in real exchange rates: an empirical investigation”, Journal of Political Economy 105, 862-879.
    • [14] Roll R. (1979), “Violations of purchasing power parity and their implications for efficient international commodity markets”, In International Finance and Trade, Vol. 1, Marshall S, Szego GP (eds). Ballinger: Cambridge, MA; 133-176. (Reprinted in MacDonald R, Taylor MP (eds), 1992b, 349-392.)
    • [15] Rose, A. K. (1988), “Is the Real Interest Rate Stable?”, Journal of Finance 43, 1095-1112.
    • [16] Smallwood, A.D. and Norrbin, S.C. (2003), “An Encompassing Test of Real Interest Rate Equalization”, Florida State University.
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