Main Article Content
Abstract
Abstract. This study examines the relationships between inflation, interest rates, and US dollar exchange rates from 2013 to 2023. The main objective is to evaluate the value of the US dollar (USD) and understand how key economic indicators interact. Using advanced quantitative analysis, we identify patterns that define these variables. A macro model incorporating the natural logarithms of the USD Index (USDX), Federal Funds Rate (FFR), and Consumer Price Index (CPI) addresses time-related and growth factors. By tracking inflation, interest rates, and dollar fluctuations, we gain insights into the factors influencing the US economy. The findings highlight the slow adjustment of inflation towards long-term stability and reveal significant causal relationships among the variables. As global financial conditions evolve, this study offers relevant insights for policymakers, economists, and market participants on navigating the dynamics of inflation, interest rates, and exchange rates in today's economic landscape.
Keywords: Inflation; exchange rate; the United States; fed; fed funds rate
Keywords
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Copyright @2017. This is an open-access article distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License (http://creativecommons.org/licenses/by-nc-sa/4.0/) which permits unrestricted non-commercial used, distribution and reproduction in any medium
References
- Akbar, M., Iqbal, F., & Noor, F. (2019). Bayesian analysis of dynamic linkages among gold price, stock prices, exchange rate and interest rate in Pakistan. Resources Policy, 62, 154–164. https://doi.org/10.1016/j.resourpol.2019.03.003
- Amanda, S. T., Akhyar, C., Ilham, R. N., & Adnan. (2023). The effect of inflation, exchange exchange, interest rate on stock price in the transportation sub-sector, 2018-2020. Journal of Accounting Research, Utility Finance and Digital Assets, 1(4), 342–352. https://doi.org/10.54443/jaruda.v1i4.54
- Bernanke, B. S. (2020). The new tools of monetary policy. American Economic Review, 110(4), 943–983. https://doi.org/10.1257/aer.110.4.943
- Brown, K. (2011, January 25). Global inflation: What does it all mean?. globalEDGE Blog: Global Inflation: What Does It All Mean? >> globalEDGE: Your source for Global Business Knowledge. https://globaledge.msu.edu/blog/post/965/global-inflation-what-does-it-all-mean
- Buffie, E. F., Airaudo, M., & Zanna, F. (2018). Inflation targeting and exchange rate management in less developed countries. Journal of International Money and Finance, 81, 159–184. https://doi.org/10.1016/j.jimonfin.2017.09.013
- Chen, J. (n.d.). What is the U.S. dollar index (USDX) and how to trade it. Investopedia. https://www.investopedia.com/terms/u/usdx.asp
- Couharde, C., Delatte, A.-L., Grekou, C., Mignon, V., & Morvillier, F. (2020). Measuring the balassa-samuelson effect: A guidance note on the RPROD database. International Economics, 161, 237–247. https://doi.org/10.1016/j.inteco.2019.11.010
- Enders, W. (2014). Applied Econometric Time Series (4th ed.). New Jersey.: John Wiley & Sons, Inc.
- Eric. (2021, October 4). Introduction to Granger causality. Aptech. https://www.aptech.com/blog/introduction-to-granger-causality/#:~:text=Granger%20causality%20is%20an%20econometric,for%20forecasting%20the%20other%20variable
- Fernando, J. (2023, June 6). Inflation: What it is, how it can be controlled, and extreme examples. Investopedia. https://www.investopedia.com/terms/i/inflation.asp#:~:text=Inflation%20is%20a%20rise%20in,over%20some%20period%20of%20time
- Gourinchas, P.-O. (2022, July 26). Global economic growth slows amid gloomy and more uncertain outlook. IMF. https://www.imf.org/en/Blogs/Articles/2022/07/26/blog-weo-update-july-2022
- Hatemi, J. A. (2014). Asymmetric generalized impulse responses with an application in finance. Economic Modelling, 36, 18-22.
- Jamil, M. N., Rasheed, A., Maqbool, A., & Mukhtar, Z. (2023). Cross-cultural study the macro variables and its impact on exchange rate regimes. Future Business Journal, 9(1). https://doi.org/10.1186/s43093-023-00189-1
- Johansen, S. (2000). Modelling of cointegration in the vector autoregressive model. Economic Modelling, 17, 359-373.
- Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration– with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52 (2), 169–210.
- Lütkepohl, H. (2008). Impulse response function. The New Palgrave Dictionary of Economics, 2.
- Meese, R. A., & Rogoff, K. (1983). Empirical exchange rate models of the Seventies. Journal of International Economics, 14(1–2), 3–24. https://doi.org/10.1016/0022-1996(83)90017-x
- Murray, J. (2000). Why Canada needs a flexible exchange rate. The North American Journal of Economics and Finance, 11(1), 41–60. https://doi.org/10.1016/s1062-9408(00)00027-9
- Ocampo, J. A., S., J. K., & Khan, S. (2007). Real Exchange Rate, Monetary Policy and Employment. In Policy matters: Economic and Social Policies to sustain equitable development (pp. 272–274). essay, Orient Longman.
- Schwarz, G. (1978). Estimating the Dimension of a Model. The Annals of Statistics, 6(2), 461–464. http://www.jstor.org/stable/2958889
- Shobande, O. A., & Shodipe, O. T. (2021). Monetary policy interdependency in Fisher Effect: A comparative evidence. Journal of Central Banking Theory and Practice, 10(1), 203–226. https://doi.org/10.2478/jcbtp-2021-0010
- Smith, E. (2021, October 5). ERA of higher inflation would cause major currency volatility, economist says. CNBC. https://www.cnbc.com/2021/10/05/era-of-higher-inflation-would-cause-major-currency-volatility-economist-says.html
- Svensson, L. E. O. (2020). Monetary Policy Strategies for the Federal Reserve. https://doi.org/10.3386/w26657
- Swanson, E. T. (2021). Measuring the effects of Federal Reserve forward guidance and asset purchases on financial markets. Journal of Monetary Economics, 118, 32–53. https://doi.org/10.1016/j.jmoneco.2020.09.003
- Taylor, J. B. (2019). Inflation targeting in high inflation emerging economies: Lessons about rules and Instruments. Journal of Applied Economics, 22(1), 103–116. https://doi.org/10.1080/15140326.2019.1565396
- Twin, A. (2023, June 5). 6 factors that influence exchange rates. Investopedia. https://www.investopedia.com/trading/factors-influence-exchange-rates/
References
Akbar, M., Iqbal, F., & Noor, F. (2019). Bayesian analysis of dynamic linkages among gold price, stock prices, exchange rate and interest rate in Pakistan. Resources Policy, 62, 154–164. https://doi.org/10.1016/j.resourpol.2019.03.003
Amanda, S. T., Akhyar, C., Ilham, R. N., & Adnan. (2023). The effect of inflation, exchange exchange, interest rate on stock price in the transportation sub-sector, 2018-2020. Journal of Accounting Research, Utility Finance and Digital Assets, 1(4), 342–352. https://doi.org/10.54443/jaruda.v1i4.54
Bernanke, B. S. (2020). The new tools of monetary policy. American Economic Review, 110(4), 943–983. https://doi.org/10.1257/aer.110.4.943
Brown, K. (2011, January 25). Global inflation: What does it all mean?. globalEDGE Blog: Global Inflation: What Does It All Mean? >> globalEDGE: Your source for Global Business Knowledge. https://globaledge.msu.edu/blog/post/965/global-inflation-what-does-it-all-mean
Buffie, E. F., Airaudo, M., & Zanna, F. (2018). Inflation targeting and exchange rate management in less developed countries. Journal of International Money and Finance, 81, 159–184. https://doi.org/10.1016/j.jimonfin.2017.09.013
Chen, J. (n.d.). What is the U.S. dollar index (USDX) and how to trade it. Investopedia. https://www.investopedia.com/terms/u/usdx.asp
Couharde, C., Delatte, A.-L., Grekou, C., Mignon, V., & Morvillier, F. (2020). Measuring the balassa-samuelson effect: A guidance note on the RPROD database. International Economics, 161, 237–247. https://doi.org/10.1016/j.inteco.2019.11.010
Enders, W. (2014). Applied Econometric Time Series (4th ed.). New Jersey.: John Wiley & Sons, Inc.
Eric. (2021, October 4). Introduction to Granger causality. Aptech. https://www.aptech.com/blog/introduction-to-granger-causality/#:~:text=Granger%20causality%20is%20an%20econometric,for%20forecasting%20the%20other%20variable
Fernando, J. (2023, June 6). Inflation: What it is, how it can be controlled, and extreme examples. Investopedia. https://www.investopedia.com/terms/i/inflation.asp#:~:text=Inflation%20is%20a%20rise%20in,over%20some%20period%20of%20time
Gourinchas, P.-O. (2022, July 26). Global economic growth slows amid gloomy and more uncertain outlook. IMF. https://www.imf.org/en/Blogs/Articles/2022/07/26/blog-weo-update-july-2022
Hatemi, J. A. (2014). Asymmetric generalized impulse responses with an application in finance. Economic Modelling, 36, 18-22.
Jamil, M. N., Rasheed, A., Maqbool, A., & Mukhtar, Z. (2023). Cross-cultural study the macro variables and its impact on exchange rate regimes. Future Business Journal, 9(1). https://doi.org/10.1186/s43093-023-00189-1
Johansen, S. (2000). Modelling of cointegration in the vector autoregressive model. Economic Modelling, 17, 359-373.
Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration– with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52 (2), 169–210.
Lütkepohl, H. (2008). Impulse response function. The New Palgrave Dictionary of Economics, 2.
Meese, R. A., & Rogoff, K. (1983). Empirical exchange rate models of the Seventies. Journal of International Economics, 14(1–2), 3–24. https://doi.org/10.1016/0022-1996(83)90017-x
Murray, J. (2000). Why Canada needs a flexible exchange rate. The North American Journal of Economics and Finance, 11(1), 41–60. https://doi.org/10.1016/s1062-9408(00)00027-9
Ocampo, J. A., S., J. K., & Khan, S. (2007). Real Exchange Rate, Monetary Policy and Employment. In Policy matters: Economic and Social Policies to sustain equitable development (pp. 272–274). essay, Orient Longman.
Schwarz, G. (1978). Estimating the Dimension of a Model. The Annals of Statistics, 6(2), 461–464. http://www.jstor.org/stable/2958889
Shobande, O. A., & Shodipe, O. T. (2021). Monetary policy interdependency in Fisher Effect: A comparative evidence. Journal of Central Banking Theory and Practice, 10(1), 203–226. https://doi.org/10.2478/jcbtp-2021-0010
Smith, E. (2021, October 5). ERA of higher inflation would cause major currency volatility, economist says. CNBC. https://www.cnbc.com/2021/10/05/era-of-higher-inflation-would-cause-major-currency-volatility-economist-says.html
Svensson, L. E. O. (2020). Monetary Policy Strategies for the Federal Reserve. https://doi.org/10.3386/w26657
Swanson, E. T. (2021). Measuring the effects of Federal Reserve forward guidance and asset purchases on financial markets. Journal of Monetary Economics, 118, 32–53. https://doi.org/10.1016/j.jmoneco.2020.09.003
Taylor, J. B. (2019). Inflation targeting in high inflation emerging economies: Lessons about rules and Instruments. Journal of Applied Economics, 22(1), 103–116. https://doi.org/10.1080/15140326.2019.1565396
Twin, A. (2023, June 5). 6 factors that influence exchange rates. Investopedia. https://www.investopedia.com/trading/factors-influence-exchange-rates/