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Uncovered Interest Parity Hypothesis for Major Currencies

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  • Karfakis, C.I.
  • Parikh, A.

Abstract

The objectives of this paper are to examine the nominal uncovered interest parity (UIP) hypothesis for three major currencies against the US dollar using the monthly data for the period 1974-1989. Forward looking expectations, interest rate differentials and risk premia variables are used to test the UIP proposition. Two measures of risk premia variables are attempted. Our conclusion is that rational expectations of exchange rates dominate the interest differential even when risk premia are considered in an UIP equation.

Suggested Citation

  • Karfakis, C.I. & Parikh, A., 1993. "Uncovered Interest Parity Hypothesis for Major Currencies," Working Papers 186, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2123/7410
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    Cited by:

    1. 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.
    2. Bhatti, Razzaque H., 2014. "The existence of uncovered interest parity in the CIS countries," Economic Modelling, Elsevier, vol. 40(C), pages 227-241.
    3. Arusha Cooray, 2003. "Financial integration: some evidence from Australia," Applied Economics Letters, Taylor & Francis Journals, vol. 10(15), pages 959-966.
    4. 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.
    5. Ashok Parikh, 1994. "Tests of real interest parity in international currency markets," Journal of Economics, Springer, vol. 59(2), pages 167-191, June.
    6. 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).

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