The key interest rate influences the exchange rate of national currency
The “X to Y” function allows you to display the different paths that lead from one notion to any other.
If you want to know the influence of “Key interest rate” on the “Exchange rate of the national currency” and what all the possible paths from one to another are, click the “X to Y” button in the tool bar.
What you see
Here are the details of the consecutive influences:
- The link between the Key interest rate (F17) and Foreign investment (D33) is red. This means that the two phenomena evolve in the opposite direction.
- The link between Foreign investment (D33) and the Demand for domestic currency (A28) is green. This means that the two phenomena evolve in the same direction.
- The link between the Demand for domestic currency (A28) and the Exchange rate of the national currency (A29) is green. This means that the two phenomena evolve in the same direction.
- Conclusion: The Exchange rate of the national currency is red. This means that the (indirect) link between the Key interest rate (F17) and the Exchange rate (A29) is red and the two phenomena are evolving in the opposite direction.
How to read the link
Here are the details of the consecutive influences:
- If the Key interest rate (F17) rises, Foreign investment coming from abroad (D33) decreases (see explanations of the link in the diagram by double-clicking the link).
- If Foreign investment decreases (D33), the Demand of national currency (A28) also decreases (see explanations in the diagram by double-clicking the link).
- If the Demand of national currency (A28) decreases, the Exchange rate of the national currency (A29) decreases (see the explanations in the diagram by double-clicking the link).
- Conclusion: If the Key interest rate (F17) increases, the Exchange rate of the national currency (A29) decreases (and vice versa).
Note: This is one possible path from F17 to A29. There are of course a multitude of others. The function “X to Y” shows them. We see that some paths lead to a link in the opposite direction and others to a link in the same direction. The final and global influence is therefore the component of many influences of different amplitudes.
