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

Andrew Rose and Robert Flood

No 2001/207, IMF Working Papers from International Monetary Fund

Abstract: This paper tests for uncovered interest parity (UIP) using daily data for 23 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.

Keywords: WP; interest rate; exchange rate; empirical; fixed; floating; developing; developed; interest rate differential; UIP tests OLS estimate; UIP deviation; exchange rate change; interest rate defense; showing interest rates; Interest rate parity; Exchange rates; Exchange rate adjustments; Exchange rate arrangements; Conventional peg (search for similar items in EconPapers)
Pages: 15
Date: 2001-12-01
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Citations: View citations in EconPapers (24)

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