The Uncovered Interest Parity in the Foreign Exchange (FX) Markets

Joe Yoshino and Silvio Ricardo Micheloto
Additional contact information
Silvio Ricardo Micheloto: FEA-IME-USP

Brazilian Review of Finance, 2004, vol. 2, issue 2, 137-157

Abstract: This work verifies the uncovered interest rates parity (UIP) in the FX (foreign exchange) emerging markets by using the panel cointegration technique. The data involves several developing countries that compose the EMBI+ Global Index. We compare the results of several panel estimators: OLS (ordinary list square), DOLS (dynamic OLS) and FMOLS (fully modified OLS). This new panel technique can handle problems of either non-stationary series (spurious regression) or small problem. This latter problem has being considered one of the main causes for distorting the UIP empirical results. By using this approach, we check the UIP in the FX (foreign exchange) emerging markets. These markets are more critical because they have been subjected to changing FX regimes and speculative attacks. Our results do not corroborate the uncovered interest parity for the developing countries in the recent years. Thus, the forward premium puzzle may hold in the FX emergent markets.

Keywords: uncovered interest rate parity; purchasing power parity; non-arbitrage; forward premium puzzle; Lucas asset pricing (search for similar items in EconPapers)
JEL-codes: F21 F31 F41 (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations:

Downloads: (external link)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/1139/339 (application/pdf)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/1139 (text/html)

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:brf:journl:v:2:y:2004:i:2:p:137-157

Access Statistics for this article

Brazilian Review of Finance is currently edited by Marcio Laurini

More articles in Brazilian Review of Finance from Brazilian Society of Finance
Bibliographic data for series maintained by Marcio Laurini ().