Abstract
In this paper, the effectiveness of an interest rate defense policy is investigated theoretically. Chen [Chen, Shiu-Sheng, 2006. Revisiting the interest rate–exchange rate nexus: a Markov switching approach. Journal of Development Economics 79 (1), 208–224] has documented an empirical regularity that higher interest rates are associated with higher exchange rate volatility. In order to account for the empirical findings, a simple theoretical model by incorporating interest rate rules in a noise trader model is proposed.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
