Uncovered Interest Parity, Forward Guidance and the Exchange Rate

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

No 14889, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Under uncovered interest parity (UIP), the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials 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 differentials in the near (distant) future are shown to have much larger (smaller) effects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.

Keywords: Forward guidance puzzle; Uncovered interest rate parity; Unconventional monetary policies; Open economy new keynesian model (search for similar items in EconPapers)
JEL-codes: E43 E58 F41 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Uncovered Interest Parity, Forward Guidance, and the Exchange Rate (2020)
Working Paper: Uncovered Interest Parity, Forward Guidance and the Exchange Rate (2018)
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