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Uncovered Interest Parity Condition between the United States and Europe under Different Exchange Rate Regimes

In: Monetary Theory and Monetary Policy

Author

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  • Gebhard Kirchgässner
  • Jürgen Wolters

Abstract

The growing integration of world capital and goods markets has led to an increasing interest in the validity of international parity conditions. These parity conditions play a key role in the theoretical foundations of different exchange rate models. One important condition with respect to the integration of capital markets and to models of the monetary approach to exchange rates is the ‘uncovered interest parity’ (UIP) hypothesis.1 This states that (under some assumptions) a nominal interest rate differential of bonds denominated in different currencies equals the expected change in the exchange rate. This hypothesis has been tested by several authors for different countries and different time periods, with mixed evidence.2

Suggested Citation

  • Gebhard Kirchgässner & Jürgen Wolters, 1993. "Uncovered Interest Parity Condition between the United States and Europe under Different Exchange Rate Regimes," Palgrave Macmillan Books, in: Stephen F. Frowen (ed.), Monetary Theory and Monetary Policy, chapter 10, pages 264-297, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-23096-9_18
    DOI: 10.1007/978-1-349-23096-9_18
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    Cited by:

    1. Bhatti, Razzaque H., 2014. "The existence of uncovered interest parity in the CIS countries," Economic Modelling, Elsevier, vol. 40(C), pages 227-241.
    2. Dieter Nautz & Jürgen Wolters, 1999. "The response of long-term interest rates to news about monetary policy actions: Empirical evidence for the U.S. and Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(3), pages 397-412, September.

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