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Implications of Volatility for Uncovered Interest Parity Testing

In: Money, Banking and Financial Markets in Central and Eastern Europe

Author

Listed:
  • Alexandra Horobet
  • Sorin Dumitrescu
  • Dan Gabriel Dumitrescu

Abstract

The concept of interest rate parity is an important component of the macroeconomic analysis for open economies and one of the basic models used in international finance. The validation of interest parity has important implications for both international corporate finance decisions and international investments. Interest rate parity has been developed in two forms, known as covered interest parity (CIP) and uncovered interest parity (UIP), which provide simple relationships between money market variables, more specifically interest rates, and foreign exchange market prices.

Suggested Citation

  • Alexandra Horobet & Sorin Dumitrescu & Dan Gabriel Dumitrescu, 2010. "Implications of Volatility for Uncovered Interest Parity Testing," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Roman Matousek (ed.), Money, Banking and Financial Markets in Central and Eastern Europe, chapter 12, pages 253-275, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30221-1_12
    DOI: 10.1057/9780230302211_12
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    Cited by:

    1. Dąbrowski, Marek A. & Janus, Jakub, 2021. "Does the interest parity puzzle hold for Central and Eastern European economies?," MPRA Paper 107558, University Library of Munich, Germany.

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