The Multi-scale Interaction Between Interest Rate, Exchange Rate And Stock Price

This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using wavelet transform. In particular, the authors apply the Maximum Overlap Discrete Wavelet Transform (MODWT) to the interest rate, exchange rate and stock price for US over the period 1990:1- 2008:12 and using the definitions of wavelet variance, wavelet correlation and cross-correlations analyze the association as well as the lead/lag relationship between these series at the different time scales. The results show that the relationship between interest rate and exchange rate is not significantly different from zero at all scales.