Lee, Byung-Joo (2007): Uncovered Interest Parity: Cross-sectional Evidence.
Download (166kB) | Preview
This paper proposes a different empirical approach to estimate the UIP by analyzing a large number of cross-country bilateral exchange rates using cross-section analysis. Different 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: developed, developing, low inflation and high inflation countries. Based on the empirical evidence, there does not appear to be a well-publicized UIP puzzle for cross-sectional UIP, and the slope estimates remain largely between zero and one throughout the sample periods, with a few exceptions. Evidence of UIP is more clear for low inflation countries than for high inflation countries. As interest rate maturity becomes longer, UIP relationship becomes weaker.
|Item Type:||MPRA Paper|
|Original Title:||Uncovered Interest Parity: Cross-sectional Evidence|
|Keywords:||Uncovered interest parity, Cross-sectional UIP|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Byung-Joo Lee|
|Date Deposited:||09. Sep 2008 06:41|
|Last Modified:||27. Apr 2015 18:26|
Alexius, Annika (2001), "Uncovered interest parity revisited," Review of International Economics, vol. 9, 505-517.
Backus, David, Allan Gregory and Chris Telmer (1993), "Accounting for forward rates in markets for foreign currency," Journal of Finance, vol. 48, 1887-1908.
Baillie, Richard T. and Tim Bollerslev (2000), "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, vol. 19, 471-488.
Baillie, Richard T., Cecen and Han (2000), "High frequency Deutsche mark-U.S. dollar returns: FIGARCH representations and non linearities," Multinational Finance Journal, vol. 4, 247-267.
Bansal, Ravi and Magnus Dahlquist (2000), "The forward premium puzzle: Different tales from developed and emerging economies," Journal of International Economics, vol. 51, 115-144.
Chaboud, Alain P. and Jonathan H. Wright (2003), "Uncovered interest parity: It works, but not for long," working paper, Board of Governors of the Federal Reserve System.
Chinn, Menzie D. and Guy Meredith (2004), "Monetary policy and long-horizon uncovered interest parity," IMF Staff Papers, vol. 51, No.3.
Coakley, Jerry and Ana-Maria Feurtes (2001), "Exchange rate overshooting and the forward premium puzzle," working paper, University of Essex.
Eichenbaum, Martin and Charles L. Evans (1995), "Some empirical evidence on the effects of shocks to monetary policy on exchange rates," Quarterly Journal of Economics, vol. 110, 975-1009.
Engel, Charles (1996), "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, vol. 3, 123-192.
Fama, Eugene (1984), "Forward and spot exchange rates," Journal of Monetary Economics, vol. 14, 319-338.
Fama, Eugene F. and James D. MacBeth (1973), "Risk, return and equilibrium: Empirical test," Journal of Political Economy, vol. 81, 607-636.
Flood, Robert P. and Andrew K. Rose (1996), "Fixes: Of the forward discount puzzle," Review of Economics and Statistics, vol. 78, 748-752.
Flood, Robert P. and Andrew K. Rose (2002), "Uncovered interest parity in crisis: The interest rate defense in the 1990s," IMF Staff Papers, vol. 49, No. 2.
Froot, Kenneth (1990), "Short rates and expected asset returns," NBER working paper No. 3247.
Froot, Kenneth and J. Frankel (1989), "Forward discount bias: Is it an exchange risk premium?" Quarterly Journal of Economics, vol. 104, 139-161.
Froot, K. and Thaler, R. (1990), "Anomalies: foreign exchange," Journal of Economic Perspective, vol. 4, 197-92.
Mark, Nelson C. and Young-Kyu Moh (2004), "Official intervention and occasional violations of uncovered interest parity in Dollar-DM market," working paper, University of Notre Dame.
Mark, Nelson, C. and Yangru Wu (1998), "Rethinking deviations from uncovered interest parity: The role of covariance risk and noise," The Economic Journal, vol. 108, 1686-1706.
McCallum, Bennett T. (1994), "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, vol. 33, 105-132.
Reinhart, Carmen M. and Rogoff, Kenneth S. (2004), "The modern history of exchange rate arrangements: A reinterpretation," Quarterly Journal of Economics, vol. 119, 1-48.
Rogoff, Kenneth (1980), "Tests of martingale model for foreign exchange futures market," in Essays on expectations and exchange rate volatility. Ph.D. Dissertation, Massachusetts Institute of Technology.