Uncovered Interest Parity

12 Pages Posted: 15 Feb 2006

See all articles by Peter Isard

Peter Isard

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 1991

Abstract

This note 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 the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod and continuous time models of open economies, and although its validity is strongly challenged by the empirical evidence, its retention in macroeconomic models is supported on pragmatic grounds, at least for the time being, by the lack of much empirical support for existing models of the exchange risk premium.

JEL Classification: F31, F41

Suggested Citation

Isard, Peter, Uncovered Interest Parity (May 1991). IMF Working Paper No. 91/51. Available at SSRN: https://ssrn.com/abstract=884827

Peter Isard (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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