This paper examines the relationship between real exchange rates and real interest rates using three different approaches across four currencies and two horizons with 20 years of data. Each approach gives some encouragement that this relationship might hold, but each approach also encounters problems establishing the form or usefulness of the relationship. On balance, this paper contributes to the literature by finding more encouraging results than in earlier studies, but it still remains to be demonstrated that the real exchange rate-real interest rate relationship is the linchpin to explaining exchange rate movements.
Alternative Approaches to Real Exchange Rates and Real Interest Rates: Three Up and Three DownInternational Journal of Finance and Economics
Citation Information"Alternative Approaches to Real Exchange Rates and Real Interest Rates: Three Up and Three Down", with Hali Edison International Journal of Finance and Economics, 4(2) April 1999, pp. 93-111.