Uncovered interest parity in Central and Eastern Europe: expectations and structural breaks
Karsten Staehr () and
No wp2015-4, Bank of Estonia Working Papers from Bank of Estonia
This paper examines the empirical validity of the hypothesis of uncovered interest parity (UIP) using data from five Central and Eastern European countries with floating exchange rates for the period 2003–2014. The analysis includes forward-looking as well as static expectations and also allows for different types of structural breaks. The variable representing the deviation from UIP is stationary when expectations are forward-looking, ruling out persistent divergences from UIP. The deviation from UIP is however typically not stationary when expectations are static, even when structural breaks are incorporated, and this leads to the rejection of the UIP hypothesis in this case. The results underscore the importance of the expectations assumptions when the UIP hypothesis is tested
Keywords: uncovered interest parity; carry trade; expectations; structural breaks; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: C32 F15 (search for similar items in EconPapers)
Date: 2015-12-30, Revised 2015-12-30
New Economics Papers: this item is included in nep-eec, nep-mon and nep-tra
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Journal Article: Uncovered interest parity in Central and Eastern Europe: Expectations and structural breaks (2017)
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