Uncovered Interest Parity, Forward Guidance, and the Exchange Rate

Jordi Galí

No 26797, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E43 E58 F41 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-cba, nep-mac, nep-opm and nep-ore
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as JORDI GALí, 2020. "Uncovered Interest Parity, Forward Guidance and the Exchange Rate," Journal of Money, Credit and Banking, vol 52(S2), pages 465-496.

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Related works:
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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