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Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies *
Author(s) -
Mehl Arnaud,
Cappiello Lorenzo
Publication year - 2009
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2008.00793.x
Subject(s) - interest rate parity , economics , liberian dollar , currency , emerging markets , us dollar , monetary economics , exchange rate , interest rate , risk premium , foreign exchange market , financial economics , international economics , macroeconomics , finance
This paper estimates uncovered interest parity (UIP) at long horizons using bilateral US dollar rates vis‐à‐vis mature economy and emerging market currencies. The paper finds support in favor of UIP for dollar rates vis‐à‐vis major mature economy currencies, but far less against emerging market currencies. There are also signs that political risk and the exchange risk premium help explain the empirical failure of UIP for these latter currencies. This suggests that whether UIP holds depends more on the currency than on the horizon.