Do Exchange Rates Move in Line With Uncovered Interest Parity?

7 Pages Posted: 2 Jan 2007

See all articles by Ronald Huisman

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Ronald Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group; TiasNimbas Business School

Arjen Mulder

Erasmus University Rotterdam (EUR) - Department of Financial Management

Date Written: January 2007

Abstract

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

Huisman, Ronald and Mahieu, Ronald J. and Mulder, Arjen, Do Exchange Rates Move in Line With Uncovered Interest Parity? (January 2007). ERIM Report Series Reference No. ERS-2007-012-F&A. Available at SSRN: https://ssrn.com/abstract=954543 or http://dx.doi.org/10.2139/ssrn.954543

Ronald Huisman (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Ronald J. Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2430 (Phone)
+31 13 466 3280 (Fax)

HOME PAGE: http://center.uvt.nl/staff/mahieu/

TiasNimbas Business School ( email )

Warandelaan 2
Tilburg, North-Brabant 5071HS
Netherlands

Arjen Mulder

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Office T08-35
3000 DR Rotterdam, 3000DR
Netherlands
+31.10.4081929 (Phone)

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