The interest rate and exchange rate relation: a literature review
Enviado por Guilherme Sganserla el Vie, 10/18/2024 - 14:17
Objetivos / Objectives:
This paper aims to better understand the consequences of monetary policy in the exchange rate of emerging countries.
Metodología / Methodology:
Literature review
Principales resultados / Main results:
The paper concludes that both orthodox and heterodox economics understanding of the relationship between the exchange rate and the interest rate is based on the assumption that currency is an asset whose value rises when its wields (interests) rise. The data analyses of this relationship, however, remain inconclusive. Finally, the macroeconomic models usually do not account for specificities of emerging market currencies, such as the currency hierarchy and the effect of international liquidity cycles.
Bibliografía / Bibliography:
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Branson, W. H. (1974). Stocks and flows in international monetary analysis. In Ando, A.,
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27–51. Federal Reserve Bank of Boston.
De Grauwe, P., Kaltwasser, P. R. (2012) Animal spirits in the foreign exchange market, Journal of Economic Dynamics and Control, Vol. 36, No 8, pp. 1176-1192. DOI: 10.1016/j.jedc.2012.03.008
Dornbusch, R. (1976). Expectations and exchange rate dynamics. The journal of political
economy, pages 1161–1176
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The
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Frenkel, J. (1976). A monetary approach to the exchange rate: doctrinal aspects and empirical evidence. The Scandinavian Journal of Economics.
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exchange rate determination. Routledge.
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Hambuckers, J., Ulm, M. (2023). On the role of interest rate differentials in the dynamic asymmetry of exchange rates. Economic Modelling.
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Wang, H. The relationship between exchange rates and interest rates: Evidence from the U.S. and Europe. Highlights in Business, Economics and Management.
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