Uncovered Interest Parity in Crisis: The Interest Rate Defense in the 1990s

December 1, 2001

Preview Citation

Format: Chicago

Andrew K. Rose, and Robert P Flood. Uncovered Interest Parity in Crisis: The Interest Rate Defense in the 1990s, (USA: International Monetary Fund, 2001) accessed October 6, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper tests for uncovered interest parity (UIP) using daily data for 23 developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometimes insignificantly different from unity). UIP works systematically worse for fixed and flexible exchange rate countries than for crisis countries, but we find no significant differences between rich and poor countries.

Subject: Conventional peg, Exchange rate adjustments, Exchange rate arrangements, Exchange rates, Financial services, Foreign exchange, Interest rate parity

Keywords: Conventional peg, Developed, Developing, Empirical, Exchange rate, Exchange rate adjustments, Exchange rate arrangements, Exchange rate change, Exchange rates, Fixed, Floating, Interest rate, Interest rate defense, Interest rate differential, Interest rate parity, Showing interest rates, UIP deviation, UIP tests OLS estimate, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/207
Stock No:

WPIEA2072001
ISBN:

9781451874655
ISSN:

1018-5941

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