## IMF Staff Papers, Volume 51, No. 3

_IMF Staff Papers, November 23, 2004_

## Source details

**Canonical URL:** [IMF Staff Papers, Volume 51, No. 3](https://www.imf.org/en/publications/imf-staff-papers/issues/2016/12/30/imf-staff-papers-volume-51-no-17371)

## Other formats

- [Markdown version](/en/publications/imf-staff-papers/issues/2016/12/30/imf-staff-papers-volume-51-no-17371/index.md)
- [Structured JSON version](/en/publications/imf-staff-papers/issues/2016/12/30/imf-staff-papers-volume-51-no-17371/index.json)
- [Bundle manifest](/en/publications/imf-staff-papers/issues/2016/12/30/imf-staff-papers-volume-51-no-17371/bundle-manifest.json)

## Bibliographic details
- Published: November 23, 2004
- Series: IMF Staff Papers
- Volume: 51
- DOI: https://doi.org/10.5089/9781589063518.024

---

### Summary and main findings
- Tests uncovered interest parity (UIP) using interest rates on longer maturity bonds for the Group of Seven countries.
- Long-horizon regressions yield much more support for UIP:
  - "All of the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to zero."
- Analyzes the decision by a government facing electoral uncertainty to implement structural reforms in the presence of fiscal restraints similar to the Stability and Growth Pact.

### Methodology and scope
- Empirical approach: long-horizon regressions using interest rates on longer maturity bonds.
- Country coverage for UIP tests: Group of Seven countries.
- Theoretical/policy analysis: modeling government decision-making under electoral uncertainty with fiscal constraints analogous to the Stability and Growth Pact.

### Policy implications and analysis
- Evidence supporting UIP at longer horizons implies market behavior more consistent with uncovered interest parity when using long-maturity bond data.
- The government-reform analysis highlights trade-offs for policy implementation when:
  - Electoral uncertainty is present.
  - Fiscal restraints resemble the Stability and Growth Pact.

### Subjects and keywords
- Subjects: Asset prices, Exchange rates, Foreign exchange, Inflation, Labor, Labor unions, Prices, Real exchange rates
- Keywords: Asia and Pacific, Asset prices, Central and Eastern Europe, Europe, Exchange rates, Global, Inflation, inflation expectation, Labor unions, liberalization episode, market efficiency, market performance, market value, monetary policy rule, monopoly trade union, price level, Real exchange rates, SP, Sub-Saharan Africa, trade liberalization

---


_Source: https://www.imf.org/en/publications/imf-staff-papers/issues/2016/12/30/imf-staff-papers-volume-51-no-17371_