 On the exchange rate expectations: Does UIP really beat PPP and random walks?Abdul Rashid () International Journal of Economics and Business Research, 2012, vol. 4, issue 3, 346-361 Abstract: In this paper, the purchasing power parity, uncovered interest rate parity and random walk component are nested in a single equation and tested for Pakistan. The autoregressive distributed lag framework is used to recover the underlying parameters of exchange rate expectations formation. The estimates of unit-root tests indicate that all the variables have same order of integration. The long-run estimates show that the interest rate differential is the most significant determinant of exchange rate expectations. Besides, I find that the present stance of the exchange rate has also a critical role to play in exchange rate expectations. These findings are of significance in process of financial reforms and to design an effective exchange rate policy alike. Keywords: PPP; purchasing power parity; UIP; uncovered interest rate parity; random walks; interactions; exchange rate expectations; convergence; long-run estimates; ARDL; autoregressive distributed lag models; financial reforms; exchange rates; single equations; Pakistan; underlying parameters; unit-root tests; variables integration; interest rate differentials; significant determinants; exchange rate policies; economics; business research. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:4:y:2012:i:3:p:346-361 Access Statistics for this article More articles in International Journal of Economics and Business Research from Inderscience Enterprises Ltd |
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