Exchange rate and interest rate in Thailand: a look at traditional and revisionist views
In this paper, we analyze the traditional-revisionist debate on whether high interest rate can defend the downfall in currency values by allowing for asymmetric responses of exchange to positive and negative changes in the interest rate using Thailand data. Applying an EGARCH specification with long spam of data, we find evidence in support of the revisionist view. Namely, while the decline in the interest rate may lead to currecy depreciation, we find no evidence that high interest rate appreciates the currency. Instead, albeit small in magnitude, high interest rate tends to lead further depreciation. Thus, the policy of high interest rate to defend the currency can be futile and costly.
Interest rate , Exchange rate , Thailand , EGARCH
Ibrahim, M. H. (2009). Exchange rate and interest rate in Thailand: a look at traditional and revisionist views. Journal of Applied Research in Finance, 1(2), pp. 135-140.
The European Centre of Managerial and Business Studies