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Uncovered Interest Parity in Central and Eastern Europe: Sample, Expectations and Structural Breaks

Juan Cuestas, Fabio Filipozzi and Karsten Staehr ()

No 2015014, Working Papers from The University of Sheffield, Department of Economics

Abstract: This paper examines the empirical validity of the hypothesis of uncovered interest parity (UIP) using data from five Central and Eastern European countries with floating exchange rates for the period 2003-2013. The analysis includes forward-looking as well as static expectations and also allows for different types of structural breaks. The variable representing deviations from UIP is stationary when expectations are forward-looking, but typically not when expectations are static even when structural breaks are incorporated. The results underscore the importance of the assumptions when the UIP hypothesis is tested.

Keywords: Uncovered interest parity; arbitrage; structural breaks; expectations; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: C32 F15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-05
New Economics Papers: this item is included in nep-tra
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Downloads: (external link) First version, June 2015 (application/pdf)

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