Do Exchange Rates Move in Line With Uncovered Interest Parity?

Ronald Huisman, Ronald Mahieu and Arjen Mulder

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: According to uncovered interest rate Parity (UIP), the expected relative change in an exchange rate is equal to the difference between interest rates between the two currencies. Empirically, UIP is frequently rejected. In this paper, we examine whether exchange rates have at least any tendency to move in the direction predicted by UIP and whether exchange rates tend to move more in line with UIP in periods with large interest rate differentials.

Keywords: Exchange rates; Logit models; Uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: E43 G3 M (search for similar items in EconPapers)
Date: 2007-02-19
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Citations: View citations in EconPapers (2)

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