Exogenous interest rate and interest rate parity theorems: the post-Keynesian debate and a proposed alternative

Ricardo Summa and Nathalie Marins

Chapter 2 in Central Banking, Monetary Policy, and Exchange Rates, 2026, pp 23-45 from Edward Elgar Publishing

Abstract: This chapter revisits the post-Keynesian views on the covered and uncovered interest rate parity (CIP and UIP) conditions. It focuses on the interpretations offered by Lavoie and Kaltenbrunner. The chapter then proposes an alternative analytical framework using the model developed by Serrano, Summa, and Aidar, which considers exogenous interest rates and endogenous expectations. This approach can explain the empirical regularities associated with the failure of UIP, such as the observed carry trade phenomena during stable periods and the reversal of this pattern during episodes of financial distress. Thus, the chapter's contribution is to show that this framework can accommodate key insights from the post-Keynesian critiques while providing a unified analytical perspective on interest rate parity conditions.

Keywords: Interest Rate; Exchange Rate; Monetary Policy; Capital Mobility; Keynesian Economics (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035330041
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