Testing for long horizon UIP using PPP-based exchange rate expectations |
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| Affiliation: | 1. From the Division of Endocrinology and Diabetes, The Children’s Hospital of Philadelphia, Department of Pediatrics, Perelman School of Medicine at the University of Pennsylvania, Philadelphia, Pennsylvania;2. From the Orthopaedic Trauma & Fracture Service, Hospital of the University of Pennsylvania Department of Orthopaedic Surgery, Perelman School of Medicine at the University of Pennsylvania, Philadelphia, Pennsylvania;3. From the Ralston-Penn Clinic for Osteoporosis & Related Bone Disorders, Center for FOP and Related Bone Disorders, Departments of Medicine & Orthopaedic Surgery, Perelman School of Medicine at the University of Pennsylvania, Philadelphia, Pennsylvania. |
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| Abstract: | This paper revisits the uncovered interest parity relation. It supplements existing work in two ways: It focuses on long instead of short-term interest rates, and, related to that, employs exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major floating currencies over the period 1975–1997, the paper cannot support the notion of further increases in UIP-validation beyond that associated with the wave of financial market liberalization and deregulation in the early 1980s. |
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