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Pippenger's CIP-based solution to the forward-bias puzzle: A rejoinder

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  • King, Alan

Abstract

Pippenger (2011a) proposed a solution to the longstanding forward-bias puzzle that attracted several comments, to which he has recently replied (Pippenger, 2011b). In this rejoinder it is argued that the points Pippenger raises in defence of his solution do not effectively rebut the concerns originally raised. In addition, his model is found to generate puzzling regression results when applied to real-world data. It is shown that these results arise because his model's coefficients represent (potentially biased) estimates of the covered interest parity equation's coefficients.

Suggested Citation

  • King, Alan, 2011. "Pippenger's CIP-based solution to the forward-bias puzzle: A rejoinder," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 867-873.
    • Handle: RePEc:eee:intfin:v:21:y:2011:i:5:p:867-873
    DOI: 10.1016/j.intfin.2011.09.003
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    References listed on IDEAS

    as
    1. Pippenger, John, 2011. "The solution to the forward-bias puzzle," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 296-304, April.
    2. repec:cdl:ucsbec:qt5gq9z4j0 is not listed on IDEAS
    3. Sanders S., Chang, 2011. "On the (in)feasibility of covered interest parity as a solution to the forward bias puzzle," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 611-616, October.
    4. Mark E. Wohar & Nathan S. Balke, 1998. "Nonlinear dynamics and covered interest rate parity," Empirical Economics, Springer, vol. 23(4), pages 535-559.
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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