Download This PaperLong-Run UIP Holds Even in the Short Run
27 Pages Posted: 30 May 2013 Last revised: 1 Jul 2013
Date Written: May 28, 2013
Abstract
The failure of uncovered interest rate parity to explain short-term interest rate movements is well documented. We show that short-term changes in long-term interest rates do help to explain short-term exchange rate movements. The relationship gets stronger over our sample period, as the liquidity of the exchange rate market increases. We also show that controlling for time-varying exchange rate risk also helps to improve the fit of the relationship.
Keywords: currencies, long-term interest rates, uncovered interest parity
JEL Classification: F31, F37, G15
Suggested Citation: Suggested Citation
Ackermann, Fabian and Pohl, Walt and Pohl, Walt and Schmedders, Karl, Long-Run UIP Holds Even in the Short Run (May 28, 2013). Swiss Finance Institute Research Paper No. 13-31, Available at SSRN: https://ssrn.com/abstract=2272088 or http://dx.doi.org/10.2139/ssrn.2272088
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