ECB paper on interest rates and exchange rates

The ECB Working Paper "How does information affect the comovement between interest rates and exchange rates?" compares the link between exchange rates and interest rates under full information and two alternative asymmetric information approaches.

It also distinguishes between cases of expansionary and contractionary depreciations. Full information results are not robust to the presence of informational frictions. For economies exhibiting expansionary or strongly contractionary depreciations

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