Munich Personal RePEc Archive

Does Uncovered Interest rate Parity Hold After All?

Omer, Muhammad and de Haan, Jakob and Scholtens, Bert (2013): Does Uncovered Interest rate Parity Hold After All?

[img]
Preview
PDF
MPRA_paper_47572.pdf

Download (480kB) | Preview

Abstract

This paper tests Uncovered Interest Rate Parity (UIP) using LIBOR rates for the major international currencies for the period January 2001 to December 2008. We find that UIP generally holds over a short-term horizon for individual and groups of currencies. Our results suggest that it is important to take the cross correlation between currencies into account. We also find that ‘state dependence’ plays an important role for currencies with a negative interest differential vis-à-vis the US. This ‘state dependence’ could also be instrumental in explaining exchange rate overshooting.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.