Model of Connection Between Inflation and Interest Rate Based on the Polish Financial Market

Abstract

The paper presents some empirical models of financial markets, which describe international interest rates and exchange rates. The main emphasis is placed on the model based on J. A. Frenkel’s model of exchange rates, which presents the theory in detail and gives some practical applications. The paper includes Fisher-Chow test оf the stability of financial markets, shown for a large number of observations and concerning simulation models for small changes in interest rates and exchange rates, which can be used to estimate future interest rates.