Article ID Journal Published Year Pages File Type
964124 Journal of International Financial Markets, Institutions and Money 2011 6 Pages PDF
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.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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