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Testing the UIP Theory in the CEE Countries. Evidence from the Garch Models

Author

Listed:
  • Cristina Maria Triandafil

    (The University Of Finance and Banking and National Institute of Economic Research of the Romanian Academy)

  • Christian Richter

    (Royal Docks Business School, University of East London)

Abstract

This paper tests the Uncovered Interest Parity theorem at the level of the CEE countries using three types of GARCH models (EGARCH, TGARCH and CGARCH models). In general the empirical results highlight that UIP is not confirmed. We find that a possible explanation for this might consist of an indiscriminate risk premium that results in a violation of the underlying assumptions of UIP. The analysis brings in a series of risk premiums which reflect the build up of various risk layers encompassed in the dynamics of macro-economic fundamentals and macro-financial variables. Apart from revealing those risk layers which trigger macroeconomic volatility, the research sheds light on the countries’ limited capacity to achieve nominal and real convergence in the not too distant future.

Suggested Citation

  • Cristina Maria Triandafil & Christian Richter, 2012. "Testing the UIP Theory in the CEE Countries. Evidence from the Garch Models," Working Papers 2012.8, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2012.8
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    Citations

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    Cited by:

    1. Juan Carlos Cuestas & Fabio Filipozzi & Karsten Staehr, 2017. "Uncovered interest parity in Central and Eastern Europe: Expectations and structural breaks," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 695-710, September.
    2. Dąbrowski, Marek A. & Janus, Jakub, 2021. "Does the interest parity puzzle hold for Central and Eastern European economies?," MPRA Paper 107558, University Library of Munich, Germany.

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