Abstract
This paper opens up an empirical investigation of the nature of the link between real long-short interest spread differentials and real exchange rates for the integrated financial markets in the industrialized world from the 1980s and the early 1990s. The consistent evidence is that there is a long-run relationship between real exchange rates and real long-short interest spread differentials and vice versa for the UK/US markets. Also, the coefficient of the error-correction term significantly estimates feedback from the real long-short interest spread differentials to real exchange rates and vice versa in the UK/US markets.
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