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PRICE‐BASED MEASUREMENT OF FINANCIAL GLOBALIZATION: A CROSS‐COUNTRY STUDY OF INTEREST RATE PARITY
Author(s) -
Ito Hiro,
Chinn Menzie
Publication year - 2007
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2007.00379.x
Subject(s) - economics , openness to experience , international fisher effect , interest rate parity , exchange rate , interest rate , depreciation (economics) , volatility (finance) , fisher hypothesis , monetary economics , emerging markets , real interest rate , inflation (cosmology) , ex ante , nominal interest rate , globalization , econometrics , macroeconomics , capital formation , human capital , financial capital , market economy , psychology , social psychology , physics , theoretical physics , economic growth
. We characterize the relationship between ex post exchange rate depreciation and the interest differential for both developed and emerging market economies. The measured ex post uncovered interest differentials in terms of both levels and absolute values are then related to a set of variables that capture macroeconomic and policy conditions. We find that a wide diversity in the coefficient relating depreciations and interest differentials can be attributed to differences in inflation volatility, financial development, capital account openness, legal development and the nature of the exchange rate regimes. The robust results are mainly found in the emerging market country grouping.