Uncovered interest parity and risk premium convergence in Central and Eastern European countries

Chun Jiang, Xiao-Lin Li, Hsu-Ling Chang and Chi-Wei Su

Economic Modelling, 2013, vol. 33, issue C, 204-208

Abstract: This study applies non-linear threshold unit-root test to investigate the non-stationary properties of the uncovered interest parity (UIP) with risk premium for ten Central and Eastern European (CEE) countries. We find that non-linear threshold unit-root test has higher power than linear method suggested by Caner and Hansen (2001) if the true data generating process of risk premium convergence is in fact a stationary non-liner process. We examine the validity of UIP from the non-linear point of view and provide robust evidence clearly indicating that UIP holds true for seven countries. Our findings point out that capital mobility and exchange market efficiency are in these CEE countries with non-linear way.

Keywords: Non-linear threshold unit-root test; Uncovered interest parity; Risk premium (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:204-208

DOI: 10.1016/j.econmod.2013.04.025

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