Does Uncovered Interest rate Parity Hold After All?

Muhammad Omer, Jakob de Haan and Bert Scholtens

MPRA Paper from University Library of Munich, Germany

Abstract: This paper tests Uncovered Interest Rate Parity (UIP) using LIBOR rates for the major international currencies for the period January 2001 to December 2008. We find that UIP generally holds over a short-term horizon for individual and groups of currencies. Our results suggest that it is important to take the cross correlation between currencies into account. We also find that ‘state dependence’ plays an important role for currencies with a negative interest differential vis-à-vis the US. This ‘state dependence’ could also be instrumental in explaining exchange rate overshooting.

Keywords: UIP; LIBOR; system SUR; System DGLS; System DOLS (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2013-06-01
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Does Uncovered Interest Rate Parity Hold After All? (2019)
Working Paper: Does Uncovered Interest Rate Parity Hold After All? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:47572

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