Monetary Policy and the Uncovered Interest Rate Parity Puzzle: Theory and Empirical Results for Oceania

Alfred Guender

The Economic Record, 2014, vol. 90, issue 289, 207-219

Abstract: type="main" xml:id="ecor12097-abs-0001">

This article offers a theory-based explanation for why high- interest-rate countries see their currencies appreciate, the so-called UIP puzzle. The central bank bases its target rule on the lag of the policy instrument and the CPI inflation rate. When combined with a stylised model of an open economy, the endogenous target rule can account for the systematic negative relation between the change in the exchange rate and the lagged interest rate differential. Foreign inflation and the foreign interest rate also affect nominal exchange rate changes. The model-based behaviour of the exchange rate is tested on New Zealand and Australian data with mixed results.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1111/ecor.2014.90.issue-289 (text/html)
Access to full text is restricted to subscribers.

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:bla:ecorec:v:90:y:2014:i:289:p:207-219

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0249

Access Statistics for this article

The Economic Record is currently edited by Paul Miller, Glenn Otto and Martin Richardson

More articles in The Economic Record from The Economic Society of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().