Nominal Exchange Rates and Nominal Interest Rate Differentials

  title={Nominal Exchange Rates and Nominal Interest Rate Differentials},
  author={Francisco Nadal De Simone and Weshah A. Razzak},
This paper reexamines some unsettled theoretical and empirical issues regarding the relationship between nominal exchange rates and interest rate differentials and provides a model for the behavior of exchange rates in the long run, where interest rates are determined in the bond market. The model predicts that an increase in the interest rate differential appreciates the home currency. We test the model for the U.S. dollar against the Deutsche mark, the British pound, the Japanese yen, and the… CONTINUE READING


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