Testing uncovered interest parity at short and long horizons

Arbeitspapier

The unbiasedness hypothesis - the joint hypothesis of uncovered interest parity (UIP) and rational expectations - has been almost universally rejected in studies of exchange rate movements. In contrast to previous studies, which have used short-horizon data, we test this hypothesis using interest rates on longer-maturity bonds for the G-7 countries. The results of these long-horizon regressions are much more positive - the coefficients on interest differentials are of the correct sign, and almost all are closer to the predicted value of unity than to zero. These results are robust to changes in data type and to base currency (i.e., Deutschemark versus US dollar). We appeal to an econometric interpretation of the results, which focuses on the presence of simultaneity in a cointegration framework.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: HWWA Discussion Paper ; No. 102

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Open Economy Macroeconomics ; Foreign Exchange
• Subject: International Investment ; Long-Term Capital Movements ; Foreign Exchange ; Open Economy Macroeconomics ; Zinsparität ; Schätzung ; G7-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chinn, Menzie D. ; Meredith, Guy
• Event: Veröffentlichung
• (who): Hamburg Institute of International Economics (HWWA)
• (where): Hamburg
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/19449
• Last update: 10.03.2025, 11:44 AM CET