Four way equivalence model: Difference between revisions
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== See also == | == See also == | ||
* [[Carry trade]] | |||
* [[Interest rate parity]] | * [[Interest rate parity]] | ||
* [[Fisher Effect]] | * [[Fisher Effect]] |
Revision as of 08:30, 28 May 2020
A model that proposes a number of related conceptual linkages between differences in:
(i) Interest rates;
(ii) Spot and forward foreign exchange rates;
(iii) Expected inflation rates; and
(iv) The expected change in spot foreign exchange rates.
The related individual linking theories are:
- Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
- The Fisher Effect - linking interest rates with expected inflation rates.
- Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
- The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
- Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.