Interpreting first difference interest rate differentials

SASlinn — Tue, 04 Apr 2017 11:04:12 GMT

Hi everybody,

Im doing the follwoing regression:

CNY/USD = a+b(IRd-IRf)+e

Where..

CNY/USD = nominal exchange rate between China and the US (quoted indirect so USD pr CNY)

(IRd-IRf) = Interest rate differentials between Domestic (China) and Foreign (US).

As both variables are non-stationary I end up taking the first difference on both variables. So my question is, how do I interpret the beta coefficient of the interest rate differential variable when it is in first order I(1) (first difference)?

Thanks,

SASlinn

Re: Interpreting first difference interest rate differentials

alexchien — Wed, 05 Apr 2017 20:52:32 GMT

you can think of the beta to be the effect of the change of the interest rate differentials on the change of the nominal exchange rate.

Alex

topic Interpreting first difference interest rate differentials in SAS Forecasting and Econometrics

Interpreting first difference interest rate differentials

Re: Interpreting first difference interest rate differentials