Testing Uncovered Interest Rate Parity Using LIBOR

Muhammad Omer, Jakob de Haan, Bert Scholtens and Jakob de Haan
Authors registered in the RePEc Author Service: Jakob de Haan

No 3839, CESifo Working Paper Series from CESifo

Abstract: We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration techniques by Westerlund (2007), we find that UIP holds for short-term maturities, when market-specific heterogeneity is controlled for. Furthermore, the estimation results show that the speed of adjustment to the long-run equilibrium is proportional to the maturity of the underlying instrument.

Keywords: UIP; LIBOR; panel cointegration (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Testing uncovered interest rate parity using LIBOR (2014)
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