Study the relationship between real exchange rate and interest rate differential – United States and Sweden
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.
School:Högskolan i Skövde
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