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An investigation of the causal relations between exchange rates and interest rate differentials using wavelets
Jönköping International Business School (JIBS).
Jönköping International Business School (JIBS).
Jönköping International Business School (JIBS).
2014 (English)In: International Review of Economics and Finance, ISSN 1059-0560, E-ISSN 1873-8036, Vol. 29, 321-329 p.Article in journal (Refereed) Published
Abstract [en]

This paper uses wavelet analysis to investigate causality between the spot exchange rate and the nominal interest rate differential for seven country pairs, which includes Sweden. Impulse response functions are also utilized to examine the signs of how one of these variables affects the other over time. One key empirical finding from the causality tests is that there is strengthening evidence of the nominal interest rate differential Granger causing the exchange rate as the wavelet time scale increases. When considering impulse responses on how the interest rate differential affects the exchange rate, there appears to be some evidence of more negative relationships at the shorter time scales (i.e. an increase in the Swedish interest rate compared to that of another country is associated with a lower Swedish krona price of the other country's currency) and more positive relationships at the longer time scales.

Place, publisher, year, edition, pages
2014. Vol. 29, 321-329 p.
Keyword [en]
Exchange rate, Intererst rate differential, Granger causality, Wavelet analysis, Uncovered interest rate parity
National Category
Economics
Research subject
Economy, Economics
Identifiers
URN: urn:nbn:se:lnu:diva-41666DOI: 10.1016/j.iref.2013.06.004OAI: oai:DiVA.org:lnu-41666DiVA: diva2:800252
Available from: 2015-04-02 Created: 2015-04-02 Last updated: 2017-04-19Bibliographically approved

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Karlsson, Hyunjoo Kim
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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf