What is it about?
The Uncovered Interest Parity theory, predicated on perfect capital mobility and a floating exchange rate regime, faces challenges in real-world contexts marked by capital restrictions and diverse exchange rate regimes. This research investigates the validity of the UIP hypothesis in selected OECD countries, considering the role of capital control and de facto exchange rate regimes.
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Why is it important?
The UIP hypothesis moves beyond being a theoretical fallacy and emerges as empirically verifiable, holding significant implications for policymakers and advancing the understanding of international finance.
Perspectives
This study explores the role of capital control and de facto exchange rate regimes in the UIP relationship. The findings offer compelling evidence in support of the UIP, particularly for immediate and short-term interest rates.
Dr Nusrate Aziz
Algoma University
Read the Original
This page is a summary of: Why does uncovered interest parity fail empirically?, International Review of Financial Analysis, October 2024, Elsevier,
DOI: 10.1016/j.irfa.2024.103429.
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