Revisiting Causal Link between interest rate differential and exchange rate of China and the United States：Frequency Domain Approach

• Main Authors: Chia-ying Lai, 賴嘉瑩
• Other Authors: 張倉耀
• Format: Others
• Language: zh-TW
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/83035628047560589796

碩士 === 逢甲大學 === 金融碩士在職專班 === 104 === In recent years, China actively moves towards financial liberalization and internationalization. This paper attempts to study the phenomena of this gradual liberalization of financial markets by looking at the causal linke between interest rate differential and exchange rate of China and the United States. In this study, we apply Granger causality test based on Frequency Domain approach to explore the interrelationship between interest rate differential and exchange rate of China and the United States using data from January 1996 to September 2015. Our empirical results demonstrate that there is no long-term cointegration relationship between the interest rate differential and exchange rate of China and the United States. Empirial Results from Granger causality test based on Frequency domain approach indicate one-way Granger causality running from the RMB exchange rate to interest rate differential in both long-term and mid- term periods. Our empirical results have important policy implications.