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actually I am looking into monthly price data on bitcoin and the us-dollar (USD/EUR) and the monthly federal funds rate.

I calculated the volatility by:

df["Vola"] = df["Price Change (in %)"].rolling(30).std()

Then I looked at the correlation between those three variables. As there is near to no correlation between bitcoin and any of the two, the correlation between the dollar volatility and the interest rate is quite high. But I am lacking the theoretical explenation for this observation.

Why should the dollar volatility decrease if the interest rate increase?

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    $\begingroup$ Did you first checked for unit roots? interests rates are often nonstationary, I am not sure about exchange rate volatility but could be too, it might be just some spurious correlation. Unless you use some more advanced techniques you should not just jump immediately into conclusion that the two are related $\endgroup$
    – 1muflon1
    Apr 28, 2023 at 11:27
  • $\begingroup$ Nope tbh I dont know what unit roots is. I am just writing my bachelor thesis now. $\endgroup$ Apr 28, 2023 at 11:53
  • $\begingroup$ these are usually covered in bachelor level statistics courses, in any case, if you did not learned about them you should then read up on them on your own and test for them any time you are dealing with time series data. $\endgroup$
    – 1muflon1
    Apr 28, 2023 at 11:55
  • $\begingroup$ I will, thank you! $\endgroup$ Apr 28, 2023 at 12:15

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