Four way equivalence model: Difference between revisions
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(i) Interest rates; | (i) Interest rates; | ||
(ii) Spot and forward foreign exchange rates; | (ii) Spot and forward foreign exchange rates; | ||
(iii) Expected inflation rates; and | (iii) Expected inflation rates; and | ||
(iv) The expected change in spot foreign exchange rates. | (iv) The expected change in spot foreign exchange rates. | ||
The related individual linking theories are: | The related individual linking theories are: | ||
(1) Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates. | (1) Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates. | ||
(2) The Fisher Effect - linking interest rates with expected inflation rates. | (2) The Fisher Effect - linking interest rates with expected inflation rates. | ||
(3) Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates. | (3) Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates. | ||
(4) The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates. | (4) The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates. | ||
(5) Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates. | (5) Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates. | ||
== See also == | == See also == |
Revision as of 14:29, 28 May 2013
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:
(1) Interest rate parity theory - linking interest rates & spot and forward foreign exchange rates.
(2) The Fisher Effect - linking interest rates with expected inflation rates.
(3) Expectations theory - forward foreign exchange rates and future out-turn spot foreign exchange rates.
(4) The International Fisher Effect - interest rate differentials and expected change in spot foreign exchange rates.
(5) Purchasing power parity theory - inflation rate differentials and expected change in spot foreign exchange rates.