Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153235
Authors: 
Mehl, Arnaud
Cappiello, Lorenzo
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 801
Abstract: 
This paper tests for uncovered interest parity (UIP) at distant horizons for the US and its main trading partners, including both mature and emerging market economies, also exploring the existence of nonlinearities. At long and medium horizons, it finds support in favour of the standard, linear, specification of UIP for dollar rates vis-à-vis major floating currencies, but not vis-à-vis emerging market currencies. Moreover, the paper finds evidence that, not only yield differentials widen, but that US bond yields do react in anticipation of exchange rate movements, notably when these take place vis-à-vis major floating currencies. Last, the paper detects signs of nonlinearities in UIP at the mediumterm horizon for dollar rates vis-à-vis some of the major floating currencies, albeit surrounded by some uncertainty.
Subjects: 
distant horizon
emerging economies
Nonlinearities
Uncovered interest parity
JEL: 
E43
F31
F41
Document Type: 
Working Paper

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