Uncovered Interest Parity: Cross-sectional Evidence

Byung-Joo Lee ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a different empirical approach to estimate the UIP by analyzing a large number of cross-country bilateral exchange rates using cross-section analysis. Different from conventional time-series UIP, cross-sectional UIP is examined with single equation estimation and panel regression model estimation. The exchange rates analyzed here include a broad spectrum of countries: developed, developing, low inflation and high inflation countries. Based on the empirical evidence, there does not appear to be a well-publicized UIP puzzle for cross-sectional UIP, and the slope estimates remain largely between zero and one throughout the sample periods, with a few exceptions. Evidence of UIP is more clear for low inflation countries than for high inflation countries. As interest rate maturity becomes longer, UIP relationship becomes weaker.

Keywords: Uncovered interest parity; Cross-sectional UIP (search for similar items in EconPapers)
JEL-codes: F31 F41 G15 (search for similar items in EconPapers)
Date: 2007-12-14
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https://mpra.ub.uni-muenchen.de/10360/1/MPRA_paper_10360.pdf original version (application/pdf)

Related works:
Journal Article: Uncovered Interest Parity: Cross‐Sectional Evidence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10360

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