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A new Test of Uncovered Interest Rate Parity: Evidence from Turkey

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  • Erdemlioglu, Deniz M
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    Abstract

    This paper examines if uncovered interest rate parity condition holds for Turkey. In this paper, an empirical analysis is provided for the dates between December 2001 and June 2007 by using monthly data for Turkey and the U.S. Main finding is that UIP does not hold for Turkey. In addition to this, UIP deviation goes up over time, AR (1) fits the data well, there is an ARCH effect and GARCH (1,1) specification is significant for Turkish case.

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    File URL: http://mpra.ub.uni-muenchen.de/10787/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10787.

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    Date of creation: Aug 2007
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    Handle: RePEc:pra:mprapa:10787

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    Related research

    Keywords: Uncovered Interest Rate Parity; Unit Root Test; AR Process; ARCH and GARCH Models;

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    1. Geert Bekaert & Min Wei & Yuhang Xing, 2002. "Uncovered Interest Rate Parity and the Term Structure," NBER Working Papers 8795, National Bureau of Economic Research, Inc.
    2. Chaboud, Alain P. & Wright, Jonathan H., 2005. "Uncovered interest parity: it works, but not for long," Journal of International Economics, Elsevier, vol. 66(2), pages 349-362, July.
    3. Robert P. Flood & Andrew K. Rose, 2002. "Uncovered Interest Parity in Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 49(2), pages 6.
    4. Daniel L.Thornton, 2007. "Resolving the unbiasedness and forward premium puzzles," Working Papers 2007-014, Federal Reserve Bank of St. Louis.
    5. Bennett T. McCallum, 1992. "A Reconsideration of the Uncovered Interest Parity Relationship," NBER Working Papers 4113, National Bureau of Economic Research, Inc.
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    7. John T. Harvey, 2004. "Deviations from uncovered interest rate parity: a Post Keynesian explanation," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 27(1), pages 19-35, October.
    8. Ralf Brüggemann & Helmut Lütkepohl, 2005. "Uncovered Interest Rate Parity and the Expectations Hypothesis of the Term Structure: Empirical Results for the U.S. and Europe," SFB 649 Discussion Papers SFB649DP2005-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    9. Flood, Robert P & Rose, Andrew K, 1996. "Fixes: Of the Forward Discount Puzzle," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 748-52, November.
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    12. Guy Meredith & Menzie D. Chinn, 1998. "Long-Horizon Uncovered Interest Rate Parity," NBER Working Papers 6797, National Bureau of Economic Research, Inc.
    13. Charles Engel, 1995. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
    14. Peter Isard, 2006. "Uncovered Interest Parity," IMF Working Papers 06/96, International Monetary Fund.
    15. M. Hadzi-Vaskov & C.J.M. Kool, 2006. "The importance of interest rate volatility in empirical tests of uncovered interest parity," Working Papers 06-16, Utrecht School of Economics.
    16. Brooks,Chris, 2008. "Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9780521694681.
    17. Baillie, Richard T. & Bollerslev, Tim, 2000. "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 471-488, August.
    18. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
    19. Chinn, Menzie D., 2006. "The (partial) rehabilitation of interest rate parity in the floating rate era: Longer horizons, alternative expectations, and emerging markets," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 7-21, February.
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