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Abstract: The present study tries to examine the behaviour of various Indian interest rates such as call money rate, and yields on secondary market securities with maturity periods of 15–91 days, 1-year, 5-years and 10-years. In the first stage, the study investigates the determinants of interest rates and finds that although the interest rates depend on some domestic macroeconomic variables such as yield spread and expected exchange rate, they are mainly affected by the movements of international interest rates, although with some lags. The policy variables such as Bank Rate and Federal Funds Rate did not show any significant impact on any of the interest rates. Further, it was found that the interest rates in the very recent period show some cyclical movements similar to that of the developed countries. Future behaviour of interest rates show that the present cycle of each interest rate would peak at different time points. This expected behaviour in domestic interest rates could be due to the integration of the domestic economy with the international money and financial market. This trend may be same in most of the emerging economies of Asia. [Copyright &y& Elsevier]

Abstract: This paper empirically reassesses the seemingly opposite interpretations of the causality running between the US interest rate and the dollar exchange rate, focusing especially on the 1980s. We conclude that the Reagan administration''s strong dollar actually lowered the US interest rate, at least in the short-run during the first half of the 1980s. However, we find that the causal relationship was time-varying, mainly triggered by changes in the investor''s exchange rate expectations. Estimation results also support Frankel and Froot''s [Frankel, J., and Froot, K. (1987). Using survey data to test standard propositions regarding exchange rate expectations. The American Economic Review 77, 133–153] argument that the extrapolative expectations prevailed in the early 1980s. These findings help to understand the so-called “erratic movement” of the US dollar in the 1980s. In particular, they give potentially very useful policy implications to the recent US economic tribulation and associated policy. [Copyright &y& Elsevier]