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Testing the interest-parity condition with Irving Fisher's example of Indian rupee and sterling bonds in the London financial market, 1869–1906

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  • Herger, Nils

Abstract

Following the pioneering work of Irving Fisher, this article assesses the uncovered interest-parity (UIP) condition by comparing Indian interest and exchange rates during the 1869 to 1906 period. The Indian case provides a good example of the UIP condition, since Indian rupee and sterling bonds were simultaneously traded in the London financial market and subject to negligible default risks. Large deviations from the UIP condition arose when India suffered from pervasive levels of uncertainty about the future of its silver-based currency system. Otherwise, a relatively close correlation arises between sterling-to-rupee interest-rate differences and exchange-rate changes.

Suggested Citation

  • Herger, Nils, 2019. "Testing the interest-parity condition with Irving Fisher's example of Indian rupee and sterling bonds in the London financial market, 1869–1906," Financial History Review, Cambridge University Press, vol. 26(1), pages 21-42, April.
    • Handle: RePEc:cup:fihrev:v:26:y:2019:i:01:p:21-42_00
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    Cited by:

    1. Nils Herger, 2021. "Regulated free banking in Switzerland (1881–1907)," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 157(1), pages 1-12, December.
    2. Nils Herger, 2019. "Unregulated and regulated free banking. The case of Switzerland reinterpreted," Working Papers 19.06, Swiss National Bank, Study Center Gerzensee.

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