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SASlinn
Calcite | Level 5

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

 

 

1 ACCEPTED SOLUTION

Accepted Solutions
alexchien
Pyrite | Level 9

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

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1 REPLY 1
alexchien
Pyrite | Level 9

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

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