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Exchange Rate And Interest Rate Differential In G7 Economies

Author

Listed:
  • Peter Golit

    (Central Bank of Nigeria)

  • Afees Salisu

    (Centre for Econometric & Allied Research, University of Ibadan)

  • Akinwunmi Akintola

    (Central Bank of Nigeria)

  • Faustina Nsonwu

    (Central Bank of Nigeria)

  • Itoro Umoren

    (Central Bank of Nigeria)

Abstract

We offer new insights on the dynamics of the exchange rate-interest rate differential for the case of G7 economies. We show that the nexus is better considered using an asymmetric model, as suggested by a host of previous studies. In addition, we find the role of accounting for structural breaks to be prominent. We also show differences in the nexus between euro and non-euro G7 countries, suggesting heterogeneous monetary policies. Thus, we document the strongest evidence for the sticky price hypothesis in Japan and lesser evidence in the euro countries and the United Kingdom, with Canada consistently revealing evidence for the flexible price hypothesis.

Suggested Citation

  • Peter Golit & Afees Salisu & Akinwunmi Akintola & Faustina Nsonwu & Itoro Umoren, 2019. "Exchange Rate And Interest Rate Differential In G7 Economies," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(3), pages 263-286, October.
    • Handle: RePEc:idn:journl:v:22:y:2019:i:3b:p:263-286
    DOI: https://doi.org/10.21098/bemp.v22i3.1147
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    References listed on IDEAS

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    More about this item

    Keywords

    G7 countries; asymmetry; Structural break; Exchange rate; Interest rate differential;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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