Interest rate and exchange rate policies

LABUAN SCHOOL OF INTERNATIONAL
BUSINESS AND FINANCE
UNIVERSITI MALAYSIA SABAH
LABUAN INTERNATIONAL CAMPUS

GB30703

INTERNATIONAL MONEY AND CAPITAL MARKETS

INTEREST RATE AND EXCHANGE RATE POLICIES

SEMESTER 1, 2013/2014

PREPARED TO: MR. RICKY CHIA CHEE JIUN

PREPARED BY:

NO.
NAME
MATRIC NO.
HP. NO.
1
MUHAMMAD RIDZWAN BIN ABD RAHMAN
BG11110337
013-6604707

SUBMISSION DATE: 10th DECEMBER 2013

Table of Contents

LIST OF ABBREVIATIONS

ADF Augmented Dickey Fuller
AIC Akaike Information Criterion
AUD Australian Dollar
FPM Flexible Price Monetary Model
LR Likelihood Ratio
NZD New Zealand Dollar
PBT Portfolio Balance
PPP Purchasing Power Purchase Agreement
RBA Reserve Bank of Australia
RIRD Real Interest Rate Differential Model
SBC Schwarc Bayesian Criterion
SPM Sticky Price Monetary Model

LIST OF FIGURES

Figure 1: Australian Fixed Interest Rates
Figure 2: Exchange Rates and Relative Prices
Figure 3: Official Reserve Assets
Figure 4: Selected Asian Currencies against the US Dollar
Figure 5: Australian Dollar

Figure 6: Australian Interest Rate and Exchange Rate Volatility

Figure 7: New Zealand Dollar Exchange rate & trade-weighted index

Figure 8: Figure 8: Nominal and real exchange rates

LIST OF TABLES

Table 1: Augmented Dickey Fuller (ADF) Test Statistic for Australia
Table 2: Augmented Dickey Fuller (ADF) Test Statistic for New Zealand

Table 3: Co -integration LR Test Based on Maximal Eigen value for Australia

Table 4: Co-integration LR Test Based on Trace for Australia.

Table 5: Co-integration LR Test Based on Maximal Eigen value for New Zealand

Table 6: Co-integration LR Test Based on Trace for New Zealand
Table 7: Granger Causality Test for Australia
Table 8: Granger Causality Test for New Zealand

ABSTRACT

In this paper study aims to investigate the relationship between interest rate and exchange rate policies

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