Title page for etd-0517114-084240


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URN etd-0517114-084240
Author Sheng-wen Chen
Author's Email Address No Public.
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Department Economics
Year 2013
Semester 2
Degree Master
Type of Document
Language zh-TW.Big5 Chinese
Title Reexamination of the relationship between Real Exchange Rates and Real Interest Differentialsļ¼¨The Evidence from G7 countries
Date of Defense 2014-05-21
Page Count 65
Keyword
  • Impulse Response
  • Vector Autoregression
  • Uncovered Interest Parity
  • Abstract This paper applies a vector autoregressive model of real exchange rate changes and real interest rate differentials to estimate expected real exchange rate changes. The constructed real exchange rate changes are then regressed on real interest differentials. The estimated slope coefficient from the above regression implies cross-equation restrictions on the coefficients of the VAR model. We adopt the Wald test to examine the validity of the above restrictions. Besides, the estimated slope coefficient can be decomposed to the product of the correlation and relative standard deviation of expected real exchange rate changes and real interest differentials, which allows us to examine the reason why the estimated coefficient being different from 1.0. Finally, we apply the impulse response analysis to examine the effect of shocks on real exchange rates and real interest rate differentials.
    Our empirical results indicate that although most countries fail to reject the validity of cross-equation restrictions, the estimated slope coefficient is not close to one, and the reason is due to the small relative standard errors of real expected real exchange rate changes and real interest differentials. Finally, the results from the impulse response analysis point out that the increase in the real interest differential of a domestic country leads to a currency appreciation of that country, except for Japan, which supports the negative relationship between real exchange rates and real interest differential for most countries under investigation. As for the positive relationship between the real interest differential and the real exchange rate, it could be due to the influence of the carry trade.
    Advisory Committee
  • Yu-hao Wu - chair
  • Shu-Ling Chiang - co-chair
  • Wu,Jyh-Lin - advisor
  • Files
  • etd-0517114-084240.pdf
  • indicate access worldwide
    Date of Submission 2014-06-17

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