Does the uncovered interest parity hold in short horizons?
AbstractIn this article, one of the contemporaneous monetary theories of exchange rate determination, namely uncovered interest parity (UIP), is examined. The UIP hypothesis assumes that if capital is perfectly mobile, then investors around the world will be indifferent between holding their portfolios in domestic or foreign securities, because they obtain the same return from these assets. Based on a theoretical formulation, our ex post estimation results employing four developed countries exchange rates vis-á-vis US dollar indicate the failure of the UIP hypothesis using short-horizon interest differential and future spot exchange rate data, in line with most empirical papers in the economics literature.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20788.
Date of creation: 2010
Date of revision:
Publication status: Published in Applied Economics Letters 4.17(2010): pp. 361-365
Uncovered interest parity; GMM estimator;
Other versions of this item:
- Ozgur Aslan & H. Levent Korap, 2010. "Does the uncovered interest parity hold in short horizons?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(4), pages 361-365.
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-06 (All new papers)
- NEP-IFN-2010-03-06 (International Finance)
- NEP-MON-2010-03-06 (Monetary Economics)
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