Study the relationship between real exchange rate and interest rate differential – United States and Sweden

by Wang, Zhiyuan

Abstract (Summary)
This paper uses co-integration method and error-correction model to re-examine the relationship between real exchange rate and expected interest rate differentials, including cumulated current account balance, over floating exchange rate periods. As indicated by the dynamic model, I find that there is a long run relationship among the variables using Johansen co-integration method. Final conclusion is that the empirical evidence is provided to show that our error-correction model leads to a good real exchange rate forecast.
Bibliographical Information:


School:Högskolan i Skövde

School Location:Sweden

Source Type:Master's Thesis

Keywords:exchange rate interest differentials unit root co integration error correction model and forecast


Date of Publication:06/19/2007

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