Does Uncovered Interest Rate Parity Hold After All?

Muhammad Omer, Jakob de Haan and Bert Scholtens

No 57, SBP Working Paper Series from State Bank of Pakistan, Research Department

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. Length: 22 pages

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: 2013-03
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Citations: View citations in EconPapers (1)

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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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