Uncovered Interest Parity
Electronic Access:
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Summary:
This paper provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses different interpretations of the evidence and the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod models of open economies, and although its validity is strongly challenged by the empirical evidence, at least at short time horizons, its retention in macroeconomic models is supported on pragmatic grounds by the lack of much empirical support for existing models of the exchange risk premium.
Series:
Working Paper No. 2006/096
Subject:
Currencies Exchange rates Forward exchange rates Interest rate parity Spot exchange rates
Frequency:
Biannually
English
Publication Date:
April 1, 2006
ISBN/ISSN:
9781451863567/1018-5941
Stock No:
WPIEA2006096
Pages:
14
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