International Financial Relations under the Current Float: Evidence from Panel Data

Open Economies Review, October 1998

21 Pages Posted: 7 Nov 2004  

James R. Lothian

Gabelli School of Business, Fordham University; National Bureau of Economic Research (NBER)

Yusif Simaan

Gabelli School of Business, Fordham University

Abstract

This paper uses multi-country data for the period 1973-1994 to investigate five key conditions in international finance- purchasing power parity, the Fisher equation, uncovered interest parity, and the equity-return analogues of the latter two. The results are largely consistent with theoretical expectations. Over the long run, purchasing power parity, uncovered interest parity and the Fisher effect prove to be rather good first approximations. The equity-return relations, though somewhat less so are nevertheless much better behaved than past studies would lead one to expect. Average rates of equity returns keep pace with inflation within countries in almost all instances; across countries, they are positively correlated with average rates of inflation. This is particularly the case when the data period is extended to include earlier decades.

Keywords: Fisher equation, purchasing power parity, uncovered interest parity, real stock returns

JEL Classification: E43, F31, G12

Suggested Citation

Lothian, James R. and Simaan, Yusif, International Financial Relations under the Current Float: Evidence from Panel Data. Open Economies Review, October 1998. Available at SSRN: https://ssrn.com/abstract=613948

James R. Lothian (Contact Author)

Gabelli School of Business, Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States
212-636-6147 (Phone)
212-765-5573 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yusif Simaan

Gabelli School of Business, Fordham University ( email )

113 West 60th Street
Dept. of Finance
New York, NY 10023
United States
212-636-6116 (Phone)

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