Co-Movements in Long-Term Interest Rates and the Role of PPP-Based Exchange Rate Expectations
June 1, 1999
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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.
Subject: Exchange rates, Financial services, Foreign exchange, Interest rate parity, Long term interest rates, National accounts, Return on investment, Yield curve
Keywords: cross-currency interest rate, Europe, exchange rate expectations, exchange rate movement, Exchange rates, financial market, Global, interest parity relations, interest rate development, interest rate differential, Interest rate parity, interest rate run-up, Long term interest rates, monetary policy, Return on investment, risk premium, run-ups in Europe, WP, Yield curve
Pages:
28
Volume:
1999
DOI:
Issue:
081
Series:
Working Paper No. 1999/081
Stock No:
WPIEA0811999
ISBN:
9781451850345
ISSN:
1018-5941
