Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
964124 | Journal of International Financial Markets, Institutions and Money | 2011 | 6 Pages |
Abstract
This note outlines the economic theory behind the theory of uncovered interest parity and some of the econometric issues involved in testing and interpretation. I illustrate some of the issues involved by estimating a rolling regression of the forward premium regression from 22 years of eight major currencies. I also conclude that Pippenger's model is not consistent with the theory of UIP and that furthermore there are severe econometric problems in estimating his model. The forward premium anomaly remains a paradox in international finance that is important and worthwhile to understand more fully.
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Economics and Econometrics
Authors
Richard T. Baillie,