Long-run UIP Holds even in the Short Run
نویسندگان
چکیده
The failure of uncovered interest rate parity to explain short-term interest rate movements is well-documented. We show that short-term changes in long-term interest rates do help explain short-term exchange-rate movements. The relationship gets stronger over our sample period, as the liquidity of the exchange rate market increased. We also show that controlling for time-varying exchange-rate risk also helps improve the fit of the relationship.
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