Uncovered interest parity tests and exchange rate expectations
We show that in a representative agent model with a constant risk premium, the uncovered interest parity (UIP) test coefficient can be expressed as a function of the variables and parameters of the prevailing exchange rate expectations mechanism. Taking into account the market microstructure, the robustness of this relationship is confirmed by simulations with a multi-agent model containing a time-varying risk premium. Distributed lag expectations are able to explain the often large negative values for UIP-test-coefficients usually found in empirical studies, while bandwagon expectations are able to explain more recent findings of UIP-test-coefficients larger than one. Regressive expectations generate positive values, both smaller and larger than one. Adaptive expectations are able to generate the whole spectrum of empirical values.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:54. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.