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Long-run UIP holds even in the short run


Ackermann, Fabian; Pohl, Walter; Schmedders, Karl (2013). Long-run UIP holds even in the short run. Swiss Finance Institute Research Paper 13-31, University of Zurich.

Abstract

The failure of uncovered interest rate parity to explain short-term interest rate movements is well documented. We show that short-term changes in long-term interest rates do help to explain short-term exchange rate movements. The relationship gets stronger over our sample period, as the liquidity of the exchange rate market increases. We also show that controlling for time-varying exchange rate risk also helps to improve the fit of the relationship.

Abstract

The failure of uncovered interest rate parity to explain short-term interest rate movements is well documented. We show that short-term changes in long-term interest rates do help to explain short-term exchange rate movements. The relationship gets stronger over our sample period, as the liquidity of the exchange rate market increases. We also show that controlling for time-varying exchange rate risk also helps to improve the fit of the relationship.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
JEL Classification:F31, F37, G15
Language:English
Date:28 May 2013
Deposited On:23 Jul 2013 07:06
Last Modified:16 Feb 2018 17:54
Series Name:Swiss Finance Institute Research Paper
Number of Pages:27
OA Status:Green
Official URL:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2272088

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