Uncovered Interest Parity Hypothesis for Major Currencies

Costas Karfakis and Ashok Parikh

No 186, Working Papers from University of Sydney, School of Economics

Abstract: The objectives of this paper are to examine the nominal uncovered interest parity (UIP) hypothesis for three major currencies against the US dollar using the monthly data for the period 1974-1989. Forward looking expectations, interest rate differentials and risk premia variables are used to test the UIP proposition. Two measures of risk premia variables are attempted. Our conclusion is that rational expectations of exchange rates dominate the interest differential even when risk premia are considered in an UIP equation.

Date: 1993-05
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Related works:
Journal Article: Uncovered Interest Parity Hypothesis for Major Currencies (1994)
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