Co-Movements in Long-Term Interest Rates and the Role of PPP-Based Exchange Rate Expectations
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Summary:
This paper investigates international co-movement in bond yields by testing for uncovered interest parity (UIP). Existing work is supplemented by focusing on long instead of short-term interest rates and by employing exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major currencies during 1975-97, the paper does not find a further increase in co-movement beyond that associated with the wave of financial market liberalization in the early 1980s. Given the similarity between PPP-based UIP tests and those employing actual exchange rate outcomes, the value added of the former lies mainly with data availability.
Series:
Working Paper No. 1999/081
Subject:
Exchange rates Financial services Foreign exchange Interest rate parity Long term interest rates National accounts Return on investment Yield curve
English
Publication Date:
June 1, 1999
ISBN/ISSN:
9781451850345/1018-5941
Stock No:
WPIEA0811999
Pages:
28
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