Uncovered Interest Parity in Crisis: The Interest Rate Defence in the 1990s

Robert Flood (robert.p.flood.24@nd.edu) and Andrew Rose

No 2943, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper tests for uncovered interest parity (UIP) using daily data for twenty-three developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometimes insignificantly different from unity). UIP works systematically worse for fixed and flexible exchange rate countries than for crisis countries, but we find no significant differences between rich and poor countries. Finally, we find evidence that varies considerably across countries and time, but is usually weakly consistent with an effective ?interest rate defense? of the exchange rate.

Keywords: Empirical; exchange rate; Fixed; Floating; Developing; Developed (search for similar items in EconPapers)
JEL-codes: F32 G15 (search for similar items in EconPapers)
Date: 2001-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Uncovered Interest Parity in Crisis: The Interest Rate Defense in the 1990s (2001)
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