Uncovered interest parity and policy behavior : new evidence *

McCallum [J. Monet. Econ. 33 (1994) 105–132] introduces policy behavior to resolve previous empirical rejections of the uncovered interest parity (UIP) theory. In this note, we reexamine his policy behavior argument. First, we extend the data set used by McCallum to include the recent 8 years, and contrary to the analysis provided by McCallum, we make a thorough econometric analysis of his UIP specification. It is shown that in most cases his theory is supported by the data as well as it passes conventional econometric tests. We then take a closer look at his policy behavioral relationship, but unfortunately it turns out that this specification is inconsistent with the UIP specification suggested by McCallum.  2000 Elsevier Science S.A. All rights reserved.