A Review of Theoretical Model and Empirical Research on the Relationship Between Real Exchange Rate and Real Interest Rate

Abstract

The research on the relationship between real exchange rate and real interest rate has been an important field of financial research. This paper sorted out, analyzed and summarized the main theoretical models and empirical studies on the relationship between real exchange rate and real interest rate by using method of literature analysis. It was found that the theoretical models reveals that there is a link between real exchange rate and real interest, however, the results of the empirical analysis is not the same, some empirical analysis found evidence of the link between real exchange rate and real interest rate, and other empirical analysis failed to find evidence of this.