Price-based Measurement of Financial Globalization: A Cross-Country Study of Interest Rate Parity
Abstract
The authors characterize the relationship between ex post exchange rate depreciation and
the interest differential for a set of countries that spans developed and emerging market
economies. The measured ex post uncovered interest differentials in terms of both levels and
absolute values are then related to measures of trade and financial openness, financial
development, government budget balances, institutional development, and exchange rate
regimes. They find wide diversity in the coefficient relating depreciations and
interest differentials.