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The Economics of Uncovered Interest Parity Condition for Emerging Markets: A Survey

Author

Listed:
  • Alper, C. Emre
  • Ardic, Oya Pinar
  • Fendoglu, Salih

Abstract

Financial account liberalizations since the second half of the 1980s paved way for the burgeoning literature that investigates foreign exchange market efficiency in emerging markets via testing for the uncovered interest parity (UIP) condition. This paper provides a broad and critical survey on this recent literature as well as a general understanding on the topic through reviewing the related literature on developed economies where recent methodological advances in time series econometrics have provided favorable results, questioning the previously documented UIP puzzle. The literature on emerging markets suggests that these countries deserve a special treatment by taking into account the existence of additional types of risk premia, high inflation episodes, financial contagion, peso problem, simultaneity problem, asymmetricity, and the determination of de facto structural breaks.

Suggested Citation

  • Alper, C. Emre & Ardic, Oya Pinar & Fendoglu, Salih, 2007. "The Economics of Uncovered Interest Parity Condition for Emerging Markets: A Survey," MPRA Paper 4079, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4079
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    References listed on IDEAS

    as
    1. Adrien Verdelhan, 2010. "A Habit-Based Explanation of the Exchange Rate Risk Premium," Journal of Finance, American Finance Association, vol. 65(1), pages 123-146, February.
    2. Christophe Chamley, 2006. "Complementarities in information acquisition with short-term trades," Boston University - Department of Economics - Working Papers Series WP2006-042, Boston University - Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Uncovered Interest Parity; Forward Premium Bias; Emerging Markets;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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