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Do foreign exchange forecasters believe in Uncovered Interest Parity?

Author

Listed:
  • Cuestas, Juan Carlos
  • Filipozzi, Fabio
  • Staehr, Karsten

Abstract

Uncovered Interest Parity (UIP) is typically rejected in empirical studies, but this letter finds nevertheless that Consensus Forecasts of the exchange rate for Central and Eastern European countries are based on UIP. When structural breaks are included, the forecasts are found to deviate from UIP in 2008–09 when financial markets were under severe stress.

Suggested Citation

  • Cuestas, Juan Carlos & Filipozzi, Fabio & Staehr, Karsten, 2015. "Do foreign exchange forecasters believe in Uncovered Interest Parity?," Economics Letters, Elsevier, vol. 133(C), pages 92-95.
  • Handle: RePEc:eee:ecolet:v:133:y:2015:i:c:p:92-95
    DOI: 10.1016/j.econlet.2015.05.029
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    References listed on IDEAS

    as
    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Engel, Charles, 2014. "Exchange Rates and Interest Parity," Handbook of International Economics, Elsevier.
    3. Mitchell, Karlyn & Pearce, Douglas K., 2007. "Professional forecasts of interest rates and exchange rates: Evidence from the Wall Street Journal's panel of economists," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 840-854, December.
    4. Michael Schroder & Robert Dornau, 2002. "Do forecasters use monetary models? an empirical analysis of exchange rate expectations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 535-543.
    5. D. Hauner & J. Lee & H. Takizawa, 2014. "In which exchange rate models do forecasters trust?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(18), pages 1302-1308, December.
    6. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Forecasting; Exchange rates; UIP; Eastern Europe; Structural breaks;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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