Open AccessEXCHANGE RATE AND INTEREST RATE DIFFERENTIAL IN G7 ECONOMIES
Author(s) -
Peter D. Golit,
Afees A. Salisu,
Akinwunmi Akintola,
Faustisonwu,
Itoro Umoren
Publication year - 2019
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 4
ISSN - 2460-9196
DOI - 10.21098/bemp.v22i3.1147
Subject(s) - nexus (standard) , economics , differential (mechanical device) , exchange rate , monetary economics , interest rate , international economics , computer science , engineering , embedded system , aerospace engineering
We offer new insights on the dynamics of the exchange rate–interest rate differentialfor the case of G7 economies. We show that the nexus is better considered using anasymmetric model, as suggested by a host of previous studies. In addition, we find therole of accounting for structural breaks to be prominent. We also show differences in thenexus between euro and non-euro G7 countries, suggesting heterogeneous monetarypolicies. Thus, we document the strongest evidence for the sticky price hypothesis inJapan and lesser evidence in the euro countries and the United Kingdom, with Canadaconsistently revealing evidence for the flexible price hypothesis.