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Covered Interest Parity and Speculative Efficiency: Some Empirical Evidence for Australia*
Author(s) -
TURNOVSKY STEPHEN J.,
BALL KATRINA M.
Publication year - 1983
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1983.tb00815.x
Subject(s) - interest rate parity , economics , empirical evidence , parity (physics) , liberian dollar , econometrics , interest rate , financial economics , relative purchasing power parity , international fisher effect , purchasing power parity , us dollar , forward rate , exchange rate , monetary economics , real interest rate , nominal interest rate , finance , philosophy , physics , epistemology , particle physics
Two key relationships which feature prominently through out modern international monetary theory are: (i) covered interest parity and(ii) speculative efficiency of the foreign exchange market, i.e., the unbiasedness of the forward rate as a predictor of the spot rate. This paper presents some empirical evidence for these two hypotheses using Australian data over the period September 1974 to December 1981 during which the Australian dollar was essentially floating. Both quarterly and overlapping monthly data are used. The results obtained generally provide some support for the two hypotheses.