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Do Professional Forecasters Believe in Uncovered Interest Rate Parity?

Author

Listed:
  • Constantin Bürgi
  • Mengdi Song

Abstract

No, not according to our data. Using a unique data set, we run panel regressions to test whether professional forecasters believe in uncovered interest rate parity (UIP). Specifically, we test whether the interest rate expectations for individual forecasters are in line with their exchange rate expectations using the UIP condition. This new approach allows us to test directly whether forecasters believe in UIP. We find that professional forecasters generally do not believe in UIP across a range of currencies and horizons. Given the prevalence of the UIP condition in our international macro models, these results reiterate the importance of finding the drivers for these deviations.

Suggested Citation

  • Constantin Bürgi & Mengdi Song, 2023. "Do Professional Forecasters Believe in Uncovered Interest Rate Parity?," Working Papers 202324, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:202324
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    File URL: http://hdl.handle.net/10197/25226
    File Function: First version, 2023
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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