Exchange-Rate Expectations and Nominal Interest Differentials: A Test Ofthe Fisher Hypothesis

11 Pages Posted: 23 Apr 2004

See all articles by Robert E. Cumby

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 1980

Abstract

This note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period. This proposition, often called the "Fisher open" hypothesis or the hypothesis of perfect asset substitutability, has been a major component of recent theories of exchange-rate determination, and has important implications for monetary policy.

Suggested Citation

Cumby, Robert E. and Obstfeld, Maurice, Exchange-Rate Expectations and Nominal Interest Differentials: A Test Ofthe Fisher Hypothesis (August 1980). NBER Working Paper No. w0537. Available at SSRN: https://ssrn.com/abstract=264373

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Maurice Obstfeld

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://emlab.berkeley.edu/users/obstfeld/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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