Do Exchange Rates Move in Line With Uncovered Interest Parity?

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Preprint 01 Jan 2007 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Huisman, R.; Mahieu, R.J.; Mulder, A.;

doi: 10.2139/ssrn.954543

Do Exchange Rates Move in Line With Uncovered Interest Parity?

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Abstract

According to uncovered interest rate Parity (UIP), the expected relative change in an exchange rate is equal to the difference between interest rates between the two currencies. Empirically, UIP is frequently rejected. In this paper, we examine whether exchange rates have at least any tendency to move in the direction predicted by UIP and whether exchange rates tend to move more in line with UIP in periods with large interest rate differentials.

Related Organizations

TIAS School for Business and Society
Netherlands
Erasmus University Rotterdam
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Erasmus+
Belgium
Tilburg University
Netherlands

Keywords

Exchange rates, Logit models, Uncovered interest rate parity, jel: jel:M, jel: jel:G3, jel: jel:E43

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