Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/61033 
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper No. 3839
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration techniques by Westerlund (2007), we find that UIP holds for short-term maturities, when market-specific heterogeneity is controlled for. Furthermore, the estimation results show that the speed of adjustment to the long-run equilibrium is proportional to the maturity of the underlying instrument.
Subjects: 
UIP
LIBOR
panel cointegration
JEL: 
G12
G15
F31
Document Type: 
Working Paper
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