Working Paper: CEPR ID: DP5611
Authors: Patrick Minford; David Peel
Abstract: The purpose in this letter is first to review briefly the empirical results on the relationship between real interest rates and real exchange rates; this empirical literature provides little support for the hypothesis of Roll that expected real interest rates are equal in general. Our second aim is to discuss the theoretical conditions that have to be met for his hypothesis to hold.
Keywords: real exchange rates; real interest rates; Roll
JEL Codes: C22; C51; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real interest rates (E43) | real exchange rates (F31) |
| Roll hypothesis conditions (C59) | applicability of Roll hypothesis (C59) |
| expected real interest rates across borders (E43) | applicability of Roll hypothesis (C59) |