Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies

19 Pages Posted: 2 Nov 2009

See all articles by Arnaud Mehl

Arnaud Mehl

European Central Bank (ECB)

Lorenzo Cappiello

European Central Bank (ECB)

Abstract

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.

Suggested Citation

Mehl, Arnaud and Cappiello, Lorenzo, Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies. Review of International Economics, Vol. 17, Issue 5, pp. 1019-1037, November 2009, Available at SSRN: https://ssrn.com/abstract=1495939 or http://dx.doi.org/10.1111/j.1467-9396.2008.00793.x

Arnaud Mehl (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Cappiello

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 8765 (Phone)

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