The Changing Performance of the Uncovered Interest Rate Parity Hypothesis and Monetary Policy
نویسنده
چکیده
This paper test for multiple unknown breaks in UIP regressions for seven major currencies and the years 1980-98. For periods of EMS turbulence and crises we observe a switch from the “usual” negatively signed OLS slope coefficient to high positive values. This result can be nicely explained in the framework of McCallum’s (1994) monetary policy reaction model as a consequence of a decrease in the degree of interest rate smoothing and an increased persistence of the risk premium in turbulent or crises episodes. A similar explanation can be given for the good performance of UIP for the DM/French Franc rate in most of the sample period, whereas the same finding for the French Franc/Swiss Franc rate probably simply reflects no policy response to this exchange rate.
منابع مشابه
The expectations hypothesis of the term structure of interest rates , open interest rate parity and central bank policy reaction *
A rational expectations model with endogenous monetary policy reacting to the exchange rate and the term spread shows that the empirical performance of the expectations hypothesis of the term structure and the uncovered interest rate parity hypothesis improves with the strength of the policy reaction to the exchange rate and the term spread, respectively. 2000 Elsevier Science S.A. All rights...
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