Do Exchange Rates Move in Line With Uncovered Interest Parity?
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.
|Keywords||Exchange rates, Logit models, Uncovered interest rate parity|
|JEL||Determination of Interest Rates; Term Structure of Interest Rates (jel E43), Corporate Finance and Governance (jel G3), Business Administration and Business Economics; Marketing; Accounting (jel M)|
|Publisher||Erasmus Research Institute of Management (ERIM)|
|Series||ERIM Report Series Research in Management|
|Journal||ERIM report series research in management Erasmus Research Institute of Management|
Huisman, R, Mahieu, R.J, & Mulder, A. (2007). Do Exchange Rates Move in Line With Uncovered Interest Parity? (No. ERS-2007-012-F&A). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management (ERIM). Retrieved from http://hdl.handle.net/1765/8993