Do Exchange Rates Move in Line With Uncovered Interest Parity?
7 Pages Posted: 2 Jan 2007
Date Written: January 2007
According to uncovered interest rate Parity (UIP), the expected relative change in an exchange rate is equal to the difference between interest rates between the two currencies. Empirically, UIP is frequently rejected. In this paper, we examine whether exchange rates have at least any tendency to move in the direction predicted by UIP and whether exchange rates tend to move more in line with UIP in periods with large interest rate differentials.
Keywords: Exchange rates, uncovered interest rate parity, logit models
JEL Classification: F31
Suggested Citation: Suggested Citation