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Uncovered Interest Parity in Central and Eastern Europe: Sample, Expectations and Structural Breaks

Author

Listed:
  • Juan Carlos Cuestas

    (Department of Economics, University of Sheffield)

  • Fabio Filipozzi

    (Tallinn University of Technology, Estonia)

  • Karsten Staehr

    (Tallinn University of Technology, Estonia)

Abstract

This paper examines the empirical validity of the hypothesis of uncovered interest parity (UIP) using data from five Central and Eastern European countries with floating exchange rates for the period 2003-2013. The analysis includes forward-looking as well as static expectations and also allows for different types of structural breaks. The variable representing deviations from UIP is stationary when expectations are forward-looking, but typically not when expectations are static even when structural breaks are incorporated. The results underscore the importance of the assumptions when the UIP hypothesis is tested.

Suggested Citation

  • Juan Carlos Cuestas & Fabio Filipozzi & Karsten Staehr, 2015. "Uncovered Interest Parity in Central and Eastern Europe: Sample, Expectations and Structural Breaks," Working Papers 2015014, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2015014
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2015_014
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    References listed on IDEAS

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    3. Mohti, Wahbeeah & Dionísio, Andreia & Vieira, Isabel & Ferreira, Paulo, 2019. "Regional and global integration of Asian stock markets," Research in International Business and Finance, Elsevier, vol. 50(C), pages 357-368.

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    More about this item

    Keywords

    Uncovered interest parity; arbitrage; structural breaks; expectations; Central and Eastern Europe;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F15 - International Economics - - Trade - - - Economic Integration

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