Uncovered Interest Parity, Forward Guidance and the Exchange Rate

Jordi Galí
Authors registered in the RePEc Author Service: Jordi Galí

No 1021, Working Papers from Barcelona School of Economics

Abstract: Under uncovered interest parity (UIP), the size of the e¤ect on the real exchange rate of an anticipated change in real interest rate di¤erentials is invariant to the horizon at which the change is expected. Empirical evidence using US, euro area and UK data points to a substantial deviation from that invariance prediction: expectations of interest rate di¤erentials in the near (distant) future are shown to have much larger (smaller) e¤ects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.

Keywords: unconventional monetary policies; forward guidance puzzle; uncovered interest rate parity; open economy New Keynesian model (search for similar items in EconPapers)
JEL-codes: E43 E58 F41 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ifn, nep-mac, nep-mon and nep-opm
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Related works:
Working Paper: Uncovered Interest Parity, Forward Guidance and the Exchange Rate (2020)
Working Paper: Uncovered Interest Parity, Forward Guidance, and the Exchange Rate (2020)
Working Paper: Uncovered interest parity, forward guidance and the exchange rate (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1021

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