Interest parity, risk premia, and Post Keynesian analysis

Marc Lavoie

24 citations0/0 files storedJournal of Post Keynesian Economics

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Abstract

This paper develops the cambist (or Post Keynesian) view of forward exchange rates previously put forward in Lavoie (2000), according to which the forward exchange rate is not a predictor of future spot rates. The paper deals with imperfect asset substitutability, the peculiarities of fixed exchange rates, and the impact of speculation in forward exchange markets. Whereas covered interest parity always holds in the cambist view, with the causality running from differentials in interest rates to differentials between the forward and the spot rates, a graphical analysis is provided to illustrate how the current spot rate may be influenced by the interest rate differential.

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References

1996Exchange Rate Economics 1999Money and credit in a Keynesian model of income determination 2007A Post Keynesian view of central bank independence, policy targets, and the rules versus discretion debate 1985MARKET FORCES AND THE RELATION BETWEEN THE RATES OF INTEREST AND PROFITS 2000A Post Keynesian View of Interest Parity Theorems 2001Credit, Interest Rates and the Open Economy : Essays on Horizontalism 2014Interest parity, purchasing power parity, "risk premia," and Post Keynesian economic analysis

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