Deviations from uncovered interest rate parity: a Post Keynesian explanation

John Harvey

Journal of Post Keynesian Economics, 2004, vol. 27, issue 1, 19-35

Abstract: Finding satisfactory explanations of deviations from uncovered interest rate parity (UIRP) has proved to be a frustrating experience for Neoclassical economists. Studies have focused on the role of risk, but thus far no one has been able to put forward a source thereof that can account for the specific pattern of deviations from UIRP. This paper offers an alternative perspective that finally resolves the mystery. Drawing on the work of Marc Lavoie and John Smithin and extending it with some basic Post Keynesian propositions regarding endogenous money, uncertainty, and nonergodicity, it is shown that one can devise a comprehensive explanation of UIRP--an explanation that shows that much more than risk is responsible for deviations. In particular, it is argued that Keynes's "confidence" is a vitally important and overlooked factor. This contention is supported by a regression analysis of the U.S.-German and U.S.- Japanese asset markets.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1080/01603477.2004.11051427 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Deviations from Uncovered Interest Rate Parity: A Post Keynesian Explanation (2003)
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:mes:postke:v:27:y:2004:i:1:p:19-35

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MPKE20

DOI: 10.1080/01603477.2004.11051427

Access Statistics for this article

More articles in Journal of Post Keynesian Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().