International Evidence on the Role of Monetary Policy in the Uncovered Interest Rate Parity Puzzle

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Alfred V Guender;
  • Subject: Uncovered Interest Rate Parity (UIP) Puzzle, Target Rule, Optimal Monetary Policy, Openness, Aversion to Inflation Variability
    • jel: jel:F3 | jel:E4 | jel:E5

CPI inflation targeting necessitates a flexible exchange rate regime. This paper embeds an endogenous target rule into a simple open economy macro model to explain the UIP puzzle. The model predicts that the change in the exchange rate is inversely related to the lagged... View more
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