Price-Based Measurement of Financial Globalization: A Cross-Country Study of Interest Rate Parity

26 Pages Posted: 22 Oct 2007

See all articles by Hiro Ito

Hiro Ito

Portland State University - Department of Economics

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Abstract

We characterize the relationship between ex post exchange rate depreciation and the interest differential for both developed and emerging market economies. The measured ex post uncovered interest differentials in terms of both levels and absolute values are then related to a set of variables that capture macroeconomic and policy conditions. We find that a wide diversity in the coefficient relating depreciations and interest differentials can be attributed to differences in inflation volatility, financial development, capital account openness, legal development and the nature of the exchange rate regimes. The robust results are mainly found in the emerging market country grouping.

Suggested Citation

Ito, Hiro and Chinn, Menzie David, Price-Based Measurement of Financial Globalization: A Cross-Country Study of Interest Rate Parity. Pacific Economic Review, Vol. 12, Issue 4, pp. 419-444, October 2007. Available at SSRN: https://ssrn.com/abstract=1022820 or http://dx.doi.org/10.1111/j.1468-0106.2007.00379.x

Hiro Ito (Contact Author)

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)

HOME PAGE: www.econ.pdx.edu

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
United States
608-262-7397 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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