Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53835
Authors: 
Diez de los Rios, Antonio
Sentana, Enrique
Year of Publication: 
2007
Series/Report no.: 
Bank of Canada Working Paper 2007,53
Abstract: 
Nowadays researchers can choose the sampling frequency of exchange rates and interest rates. If the number of observations per contract period is large relative to the sample size, standard GMM asymptotic theory provides unreliable inferences in UIP regression tests. We specify a bivariate continuous-time model for exchange rates and forward premia robust to temporal aggregation, unlike the discrete time models in the literature. We obtain the UIP restrictions on the continuoustime model parameters, which we estimate efficiently, and propose a novel specification test that compares estimators at different frequencies. Our empirical results based on correctly specified models reject UIP.
Subjects: 
Exchange rates
Econometric and statistical methods
JEL: 
F31
G15
Document Type: 
Working Paper

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