IMF Staff Papers: Volume 49: Special Issue: IMF Annual Research Conference

November 4, 2002

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Format: Chicago

IMF Staff Papers: Volume 49: Special Issue: IMF Annual Research Conference, (USA: International Monetary Fund, 2002) accessed December 26, 2024

Summary

This paper reports for uncovered interest parity (UIP) using daily data for 23 developing and developed countries during the crisis-strewn 1990s. UIP is a classic topic of international finance, a critical building block of most theoretical models, and a dismal empirical failure. UIP states that the interest differential is, on average, equal to the ex post exchange rate change. UIP may work differently for countries in crisis, whose exchange and interest rates both display considerably more volatility. This volatility raises the stakes for financial markets and central banks; it also may provide a more statistically powerful test for the UIP hypothesis. Policy-exploitable deviations from UIP are, therefore, a necessary condition for an interest rate defense. There is a considerable amount of heterogeneity in the results, which differ wildly by country.

Subject: Credit, Depreciation, Exchange rates, Foreign exchange, Money, National accounts, Personal income, Real exchange rates

Keywords: Africa, Central and Eastern Europe, Company, Credit, Depreciation, Donor community, Europe, Exchange rates, Firm performance, Global, Lending boom, Market reform, Personal income, Real exchange rates, Recipient government, SP

Publication Details

Pages:

248
Volume:

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DOI:

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Issue:

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Series:

IMF Staff Papers No. 2002/005
Stock No:

SPSIEA0012002
ISBN:

9781589061231
ISSN:

1020-7635

Notes

hard-copy version is not available; web only.

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