Does the uncovered interest parity hold in short horizons?

Levent Korap ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this article, one of the contemporaneous monetary theories of exchange rate determination, namely uncovered interest parity (UIP), is examined. The UIP hypothesis assumes that if capital is perfectly mobile, then investors around the world will be indifferent between holding their portfolios in domestic or foreign securities, because they obtain the same return from these assets. Based on a theoretical formulation, our ex post estimation results employing four developed countries exchange rates vis-á-vis US dollar indicate the failure of the UIP hypothesis using short-horizon interest differential and future spot exchange rate data, in line with most empirical papers in the economics literature.

Keywords: Uncovered interest parity; GMM estimator (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Applied Economics Letters 4.17(2010): pp. 361-365

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20788

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