Uncovered interest parity: The long and the short of it

James Lothian

Journal of Empirical Finance, 2016, vol. 36, issue C, 1-7

Abstract: Uncovered interest rate parity (UIP) is a theoretical relation linking changes in exchange rates and corresponding interest rate differentials. Despite its considerable intellectual appeal, uncovered interest rate parity has very often been found wanting empirically. I reinvestigate this relation using a 17-country panel of historical time series data at its longest—for the US–UK country pair—spanning 217years. I find results that are largely consistent with theory: over the long term, in most countries, bond yields expressed in common currency bear a positive relationship to one another as UIP predicts. This is in contrast to the very nearly opposite findings reported in much of the literature and now taken as a stylized fact.

Keywords: Exchange rates; Uncovered interest parity; Forward rate bias; Small sample problems; Financial history (search for similar items in EconPapers)
JEL-codes: F31 G15 N20 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539815001310
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:36:y:2016:i:c:p:1-7

DOI: 10.1016/j.jempfin.2015.12.001

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().