Cover IMF Working Papers
Uncovered Interest Parity
Author: Mr. Peter Isard
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 096
Language:
English
Publication Date:
01 Apr 2006
DOI:
https://doi.org/10.5089/9781451863567.001
ISBN:
9781451863567
ISSN:
1018-5941
Pages:
14
Keywords:
WP; risk premium
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses different interpretations of the evidence and the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod models of open economies, and although its validity is strongly challenged by the empirical evidence, at least at short time horizons, its retention in macroeconomic models is supported on pragmatic grounds by the lack of much empirical support for existing models of the exchange risk premium.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund