An Empirical Evidence of International Fisher Effect in Bangladesh with India and China: A Time-Series Approach

<div>Abstract</div><div>This paper is an attempt to examine the empirical evidence of International Fisher Effect</div><div>(IFE) between Bangladesh and its two other major trading partners, China and India. The</div><div>IFE uses interest rate differentials to explain why exchange rates change over time. A time</div><div>series approach is considered to trace the relationship between nominal interest rates and</div><div>exchange rates in these countries. The estimated value, by applying OLS, is used to</div><div>determine the casual relationship between interest rates and exchange rates for quarterly</div><div>data from 4th Quarter, 1995 to the 2nd Quarter, 2008. The empirical results suggest that there</div><div>is a little correlation between exchange rates and interest rates differential for Bangladesh</div><div>with China and Bangladesh with India, and the relationship between the variables is also</div><div>not noteworthy for Bangladesh. Further, the trends advocate that the forecasting of</div><div>exchange rates with the hypothesis of IFE is not realistic for these countries.