IDEAS home Printed from https://ideas.repec.org/a/wei/journl/v7y2017i1p24-39.html
   My bibliography  Save this article

Does the Uncovered Interest Parity Hold? Evidence for Central and Eastern European Countries

Author

Listed:
  • Deng-kui Si

    (Department of Finance, Wuhan University, Wuhan, Hubei, China)

  • Chi-Wei Su

    (Department of Finance, Ocean University of China, Shandong, China)

  • Kuo-Ming Lu

    (Department of Finance, National Chung Hsing University, Taichung, Taiwan)

  • Shuh-Chyi Doong

    (Department of Finance, National Chung Hsing University, Taichung, Taiwan)

Abstract

This study applies nonlinear quantile unit root test with Fourier function to test the validity of long-run uncovered interest parity (UIP) to assess the non-stationary properties of the interest differentials convergence for ten Central and Eastern European (CEE) countries. We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of risk premium convergence is in fact a stationary non-liner process. We examine the validity of UIP from the non-linear point of view and provide robust evidence clearly indicate that UIP holds true for six CEE countries. Our findings point out the risk premium adjustments of the six CEE countries are mean reversion towards UIP equilibrium values in a non-linear way.

Suggested Citation

  • Deng-kui Si & Chi-Wei Su & Kuo-Ming Lu & Shuh-Chyi Doong, 2017. "Does the Uncovered Interest Parity Hold? Evidence for Central and Eastern European Countries," Economic Research Guardian, Weissberg Publishing, vol. 7(1), pages 24-39, June.
    • Handle: RePEc:wei:journl:v:7:y:2017:i:1:p:24-39
    as

    Download full text from publisher

    File URL: http://www.ecrg.ro/files/p2017.7(1)1y2.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Quantile Unit Root Test; Structural Change; Trend Breaks; Uncovered Interest Parity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wei:journl:v:7:y:2017:i:1:p:24-39. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mihai Mutascu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.