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Uncovered interest parity and risk premium convergence in Central and Eastern European countries

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  • Jiang, Chun
  • Li, Xiao-Lin
  • Chang, Hsu-Ling
  • Su, Chi-Wei

Abstract

This study applies non-linear threshold unit-root test to investigate the non-stationary properties of the uncovered interest parity (UIP) with risk premium for ten Central and Eastern European (CEE) countries. We find that non-linear threshold unit-root test has higher power than linear method suggested by Caner and Hansen (2001) 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 indicating that UIP holds true for seven countries. Our findings point out that capital mobility and exchange market efficiency are in these CEE countries with non-linear way.

Suggested Citation

  • Jiang, Chun & Li, Xiao-Lin & Chang, Hsu-Ling & Su, Chi-Wei, 2013. "Uncovered interest parity and risk premium convergence in Central and Eastern European countries," Economic Modelling, Elsevier, vol. 33(C), pages 204-208.
  • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:204-208
    DOI: 10.1016/j.econmod.2013.04.025
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    References listed on IDEAS

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    1. repec:eee:phsmap:v:486:y:2017:i:c:p:554-566 is not listed on IDEAS
    2. repec:bla:reviec:v:25:y:2017:i:4:p:695-710 is not listed on IDEAS
    3. 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.
    4. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.

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