REAL EXCHANGE RATES AND REAL INTEREST DIFFERENTIALS: THE CASE OF A TRANSITIONAL ECONOMY - CAMBODIA

This study examines the existence of long-run equilibrium relationship between the Cambodia’s real exchange rates and real interest differentials. The results of cointegration tests (i.e. Engle- Granger tests, and Johansen’s multivariate tests without and with structural breaks) show that these variables are cointegrated over the sample period of November 1994 -August 2009. This empirical finding illustrates the fundamental understanding of the role of real interest differential in determining real exchange rates in Cambodia, and it is useful for policy considerations.