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Uncovered interest parity: New Zealand' s post-deregulation experience

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  • Alan King

Abstract

The uncovered interest parity (UIP) condition has been the subject of a considerable amount of research. Many of these studies, however, have either measured exchange rate expectations indirectly and/or have not considered the issue of data stationarity. Both of these issues have the potential to render tests of UIP problematical. This paper tests for the presence of UIP between New Zealand and four of its key trading partners using an approach that addresses both of the above issues. Strong evidence is found that UIP held between New Zealand and Australia in the period following the removal of capital controls, indicating that the capital markets of these two countries are now highly integrated.

Suggested Citation

  • Alan King, 1998. "Uncovered interest parity: New Zealand' s post-deregulation experience," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 495-503.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:5:p:495-503
    DOI: 10.1080/096031098332790
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    References listed on IDEAS

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    1. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
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    Cited by:

    1. Tang, Kin-Boon, 2011. "The precise form of uncovered interest parity: A heterogeneous panel application in ASEAN-5 countries," Economic Modelling, Elsevier, vol. 28(1), pages 568-573.
    2. Kam Leong Szeto, 2002. "A dynamic computable general equilibrium (CGE) model of the New Zealand economy," Treasury Working Paper Series 02/07, New Zealand Treasury.
    3. Murphy, Austin, 2008. "An empirical investigation of investor expectations in the currency market," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 108-133.
    4. Felmingham, Bruce & Leong, SuSan, 2005. "Parity conditions and the efficiency of the Australian 90- and 180-day forward markets," Review of Financial Economics, Elsevier, vol. 14(2), pages 127-145.
    5. Bruce Felmingham & SuSan Leong, 2005. "Parity conditions and the efficiency of the Australian 90‐ and 180‐day forward markets," Review of Financial Economics, John Wiley & Sons, vol. 14(2), pages 127-145.
    6. Michael Ryan & Kam Leong Szeto, 2009. "An Introduction to the New Zealand Treasury Model," Treasury Working Paper Series 09/02, New Zealand Treasury.
    7. Tang, Kin-Boon, 2011. "The precise form of uncovered interest parity: A heterogeneous panel application in ASEAN-5 countries," Economic Modelling, Elsevier, vol. 28(1-2), pages 568-573, January.

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