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Uncovered Interest Parity Hypothesis for Major Currencies

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  • Karfakis, Costas I
  • Parikh, Ashok

Abstract

The objectives of this paper are to examine the nominal uncovered interest parity hypothesis for three major currencies against the U.S. dollar using the monthly data for the period 1974-89. Forward-looking expectations, interest rate differentials, and risk premia variables are used to test the uncovered interest parity proposition. Two measures of risk premia variables are attempted. The authors' conclusion is that rational expectations of exchange rates dominate the interest differential even when risk premia are considered in an uncovered interest parity equation. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Karfakis, Costas I & Parikh, Ashok, 1994. "Uncovered Interest Parity Hypothesis for Major Currencies," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(2), pages 184-198, June.
    • Handle: RePEc:bla:manch2:v:62:y:1994:i:2:p:184-98
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    Cited by:

    1. Darvas, Zsolt, 1996. "Kamatkülönbség és árfolyam-várakozások az előre bejelentett kúszó árfolyamrendszerben [Interest differential and exchange rate expectations in the preannounced crawling band system of Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 920-947.
    2. Ashok Parikh, 1994. "Tests of real interest parity in international currency markets," Journal of Economics, Springer, vol. 59(2), pages 167-191, June.
    3. Ferreira, Paulo & Kristoufek, Ladislav, 2020. "Uncovered interest rate parity through the lens of fractal methods: Evidence from the European Union," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 553(C).
    4. Bhatti, Razzaque H., 2014. "The existence of uncovered interest parity in the CIS countries," Economic Modelling, Elsevier, vol. 40(C), pages 227-241.
    5. Arusha Cooray, 2003. "Financial integration: some evidence from Australia," Applied Economics Letters, Taylor & Francis Journals, vol. 10(15), pages 959-966.
    6. Barabás, Gyula, 1996. "Kamatparitás lebegő és csúszó leértékeléses árfolyamrendszerben [Interest parity in floating and in crawling-peg foreign exchange rate régimes]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 972-994.

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