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04-04-2017 07:04 AM

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

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04-05-2017 04:52 PM

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