Economics at your fingertips  

Testing Uncovered Interest Parity for Structural Breaks: A Developing Country Perspective

Srđan Marinković (), Ognjen Radović and Željko Šević
Additional contact information
Srđan Marinković: University of Niš
Ognjen Radović: University of Niš
Željko Šević: University of Wales Trinity Saint David

A chapter in Economic Crisis, Development and Competitiveness in Southeastern Europe, 2016, pp 121-137 from Springer

Abstract: Abstract This article is a single-country empirical study of uncovered interest parity. Uncovered interest parity (hereafter UIP) is a non-arbitrary condition well-known and widely tested in international finance. This test of UIP is based on high-frequency data. The most promising parts of the evidence are the EGARCH analysis of statistical properties of time series of deviations from UIP, and the Markov Switching model. EGARCH (1,1) delivers a model able to predict future volatility of the tested variable. Moreover, the model also describes the time-varying nature of volatility itself. The changing nature of volatility may arise due to the process of information arrivals or being liquidity driven, but can also be a consequence of some structural breaks. Namely, the time series remains homoscedastic in the short-term while heteroscedasticity appears in long-term horizons. The regime switching model is further employed in order to test if the smoothed probabilities along the sample reflect the main events through which the economy evolved over time. The model proved to be able to indicate correctly the ex-ante identified structural break that came from crisis incident, but failed to differ between pre- and post-liberalisation periods.

Keywords: F31; F36; E43 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:

Ordering information: This item can be ordered from

DOI: 10.1007/978-3-319-40322-9_8

Access Statistics for this chapter

More chapters in Contributions to Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-12-01
Handle: RePEc:spr:conchp:978-3-319-40322-9_8