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Co-Movements in Long-Term Interest Rates and the Role of PPP-BasedExchange Rate Expectations

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  • J.M. Berk
  • K.H.W. Knot

Abstract

We investigate international co-movements in bond yields by testing for uncovered interest parity. We supplement existing work by focussing on long instead of short-term interest rates, and, related to that, by employing exchange rate expectations derived from purchasing power parity instead of actual outcomes. For the major floating currencies over the period 1975-97, we cannot support the notion of further increases in co-movement beyond that associated with the wave of financial market liberalization and deregulation in the early 1980s. Given the similarity between PPP-based UIP tests and those employing actual exchange rate outcomes, the value added of the former mainly lies with their ready availability.

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File URL: http://www.dnb.nl/binaries/sr037_tcm46-146815.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 37.

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Length: 32 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:dnb:staffs:37

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Web page: http://www.dnb.nl/en/
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Keywords: interest parity relations; exchange rate expectations;

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