A Liquidity‐Based Resolution of the Uncovered Interest Parity Puzzle

Uncovered Interest Parity in Crisis

Abstract This paper tests for uncovered interest parity (UIP) using daily data for twenty-three developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometime...

The Uncovered Interest Rate Parity Puzzle in the Foreign Exchange Market

This paper focuses on the theory of uncovered interest rate parity and whether interest-rate differentials have resulted in the higher interest rate currency depreciating over time. Previous literature has empirically rejected the theory indicating that higher interest rate currencies have actually appreciated relative to lower interest rate currencies. In this paper, uncovered interest rate pa...

Testing Uncovered Interest Rate Parity Using LIBOR

We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration techniques by Westerlund (2007), we find that UIP holds for shortterm maturities, when market-specific he...

Uncovered Interest Parity: Cross-sectional Evidence

This paper proposes a di¤erent empirical approach to estimate the UIP by analyzing a large number of cross-country bilateral exchange rates using cross-section analysis. Di¤erent from conventional time-series UIP, cross-sectional UIP is examined with single equation estimation and panel regression model estimation. The exchange rates analyzed here include a broad spectrum of countries: develope...

Deviations from Uncovered Interest Rate Parity: A Post Keynesian Explanation