Uncovered Interest Parity and Policy Behavior New Evidence

Michael Christensen ()
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Michael Christensen: Department of Finance, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark, http://www.asb.dk/staff/afl/mic.aspx?page=%7B061AA9FC-A669-44F4-B298-E9759FA21305%7D

No 00-2, Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: McCallum (1994a) introduces policy behavior to resolve previous empirical rejections of the uncovered interest parity (UIP) theory. In this note, we reexamine his policy behavior argument. First, we extend the data set used by McCallum to include the recent 8 years, and contrary to the analysis provided by McCallum, we make a thorough econometric analysis of his UIP specification. It is shown that in most cases his theory is upported by the data as well as it passes conventional econometric tests. We then take a closer look at his policy behavioral relationship, but unfortunately it turns out that this specification is inconsistent with the UIP specification suggested by McCallum (1994a).

Keywords: Uncovered Interest Parity; Policy Behavior (search for similar items in EconPapers)
Date: Written 2000-01-15
Note: Later published in Economics Letters, 69, 2000, p. 81-87
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