Forecasting using SAS Forecast Server, SAS/ETS, and more

Interpreting first difference interest rate differentials

Reply
New Contributor
Posts: 4

Interpreting first difference interest rate differentials

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

 

 

SAS Super FREQ
Posts: 93

Re: Interpreting first difference interest rate differentials

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

Ask a Question
Discussion stats
  • 1 reply
  • 146 views
  • 0 likes
  • 2 in conversation