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The real uncovered interest parity: The case of Canada and the USA

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  • Mylonidis, Nikolaos
  • Paleologou, Suzanna-Maria

Abstract

The aim of this paper is to re-assess the real uncovered interest parity (RUIP) in the light of including domestic demand shocks as possible determinants of the real exchange rate. We use annual data for two close trading partners, namely Canada and the USA. Using cointegration analysis we find evidence in favour of RUIP. In addition, empirical support is provided to show that discretionary fiscal policy actions have a spillover effect to the real exchange rate via real interest rates.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 33 (2011)
Issue (Month): 2 (March)
Pages: 255-267

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Handle: RePEc:eee:jpolmo:v:33:y:2011:i:2:p:255-267

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Real exchange rate Real interest rates Cyclically adjusted deficits Cointegration;

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