DP5611 On the Equality of Real Interest Rates Across Borders in Integrated Capital Markets

Author(s): Patrick Minford, David Peel
Publication Date: April 2006
Keyword(s): real exchange rates, real interest rates, roll
JEL(s): C22, C51, F31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5611

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.