Does the nominal exchange rate regime affect the real interest parity condition?

Abstract

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The Relationship Between Exchange Rate, Inflation and Interest Rate in Turkey

“…Yapılan literatür incelemesinde birçok çalışmada döviz kurundan faiz oranlarına ya da faiz oranlarından döviz kuruna geçiş etkisi olduğu görülmüştür (Sollis & Wohar, 2006;Akçağlayan, 2008;Uysal vd., 2008;Hoffmann & MacDonald, 2009;Byrne & Nagayasu, 2010;Öztürk, 2010;Bjqrnland & Hungnes, 2006;Cambazoğlu & Karaalp, 2012;Ajao & Igbekoyi, 2013;Mamak Ekinci vd., 2016;Demirgil & Türkay, 2017;Oke & Adetan, 2018;Shodipe, 2018;Sı vd., 2018;Samani & Ansari, 2017). Bununla birlikte az sayıda çalışmada bu iki değişken arasında herhangi bir ilişki bulunamamıştır (Karaca, 2005;Choi & Park, 2008;Dreger, 2010). Özetle literatürdeki birçok çalışmaya göre döviz kurundan faiz oranlarına geçiş etkisi bulunmaktadır.…”

Globalization, long memory, and real interest rate convergence: a historical perspective

“…speed of mean reversion is high, indicating that real interest rate differentials tend to be short lived, with the half-lives of shocks lower in the first and the second waves (under fixed exchange rates) than in the third wave, probably due to higher price flexibility before WWII (Dreger 2010).…”

“…See Marston (1995) and MacDonald and Marsh (1999) for details. In this regard, the mean reversion of departures from relative PPP and UIP parities can serve as an additional indicator, respectively, for commodity markets convergence and financial markets integration (Dreger 2010) and may help to explain the driving forces of mean reversion in RIRP. This section provides this additional information.…”

“…Empirical studies utilizing the I(0)/I(1) dichotomous approach often find the parity to not hold or to give rise to mixed results. See, for instance, Wu and Chen (1998), Awad and Goodwin (1998), Wu and Fountas (2000), Nakagawa (2002), Obstfeld and Taylor (2003), Holmes and Maghrebi (2004), (Ferreira and León-Ledesma (2007), Arghyrou et al (2009), Dreger (2010), Cuestas and Harrison (2010), Güney and Hasanov (2014), Çorakcı et al (2017), andBahmani-Oskooee et al (2019), among many others.…”

“…We complement the fractional integration results by computing the corresponding impulse response functions (IR) and half-lives (HL). Finally, we shed further light on financial market integration during the three globalization waves by assessing the memory properties of uncovered interest rate parity (UIP) and relative PPP differential processes, which we argue represents the economic fundamentals of RIRP (Marston 1995;MacDonald and Marsh 1999;Dreger 2010). 1 Second, in contrast to the previous literature, we investigate whether RIRP is valid during the three waves of globalization that occurred in the last 150 years (1870-1914, 1944-1971, 1989 to the present).…”