none

High interest rate currencies tend to appreciate despite what is be implied by the uncovered interest parity. It is thought that the uncovered interest parity does not hold due to various risks, costs, liquidity issues, and monetary policies. There have been extensive studies into the cause of this phenomenon yet none have examined the period before the formation of the Federal Reserve in 1913. This study examines whether or not the uncovered interest parity holds between the UK, the US, France, Germany, the Netherlands, Belgium, Italy, Spain, and Portugal during this time period to determine if the absence of capital controls and monetary policies allow for the uncovered interest parity to hold. In the end, none of the 213 regressions testing all the country pairs across varying horizons came close to providing support for the uncovered interest parity.

none

No description available.

A large literature has related the failure of interest rate parity in the foreign exchange market to the existence of a time-varying risk premium. Nevertheless, most modern open economy DSGE models imply a (near) perfect interest rate parity condition. This paper presents a stylized two-country incomplete-markets model in which countries have strong precautionary motives because they face international liquidity constraints, the presence of which successfully generates a time-varying risk premium: the country that has accumulated debt after experiencing relative worse times has stronger precautionary motives and its asset carries a risk premium. (author's abstract) / Series: Department of Economics Working Paper Series

This paper aims to explain the current account imbalances between the United States of America, Japan and China. According to theory, such imbalances should offset each other so that the international balance of payments account is zero. The study also tests the Uncovered Interest Rate Parity (UIP) theory for the same sample of countries. The focus is on the empirics of the topic, therefore time-series analysis is used. The results suggest that American current account deficit can indeed be explained by the surpluses of the Japanese and Chinese current accounts. Furthermore, the conclusion regarding the UIP is that it simply does not hold in the real world. Finally, the main implication of this study is that the Asian countries will eventually buy up American assets if the trend of imbalances continues.

This paper reexamines the long-run real interest rate parity of the OECD countries by using the unit root test proposed by Ng and Perron (2001) and by the application of simulation to establish the small sample distribution under the null and the alternative hypothesis. By using the small sample distribution of the unit root statistics, we can make sure that first, size distortions are not the reasons contributing to the rejection of the fact that the alternative hypothesis is unit root. Second, the inference that the low power is not necessary causes the not rejecting the alternative hypothesis is correct. If still can not decide which distributions might cause the real interest difference series by comparing the unit root statistics and the relative location of the small sample distribution, we test that whether the series are asymmetric in those countries which we can not decide what kind of distributions they are by the threshold autoregression model proposed by Caner and Hansen (2001). Finally, the empirical results indicate that the RIPH holds in Australia¡BBelgium¡BCanada¡BFinland¡BFrance¡BGermany¡BJapan and Sweden whenever data frequency under linear time series model. Under quarterly data of Italy and United Kingdom and monthly data of Denmark, it turns out that the data have the traits of nonlinear time series model. Besides, the evidence of supporting the long-run real interest rate parity can not be reached and the phenomena that partial unit root exist in United Kingdom and Denmark.

[pt] O presente trabalho visa verificar a operação de carry trade. A lucratividade desta operação é observada quando a diferença de taxa de juros entre os dois países em análise é maior que a variação cambial do período. A verificação da operação, conforme literatura do tema, é realizada através do modelo de paridade descoberta de taxa de juros (PDTJ). A rejeição do modelo, vista através de regressão, possibilita a aceitação da lucratividade da operação. Este estudo, portanto, analisa esta operação entre o Brasil, país de alta taxa de juros e Estados Unidos, país de baixa taxa de juros. Ademais, o estudo visa analisar a operação em um momento de instabilidade econômica, período de 2005 a 2016, no qual consta a crise de 2008 que impactou fortemente as duas economias. / [en] The present work aims to check the carry trade operation. The profitability of this operation is observed when the interest rate difference between the two countries under analysis is greater than the exchange variation for the same period. The literature of carry trade is verified through the uncovered interest rate parity model (UIP). Rejection of the model, performed through regression, makes it possible to accept the profitability of the operation. This study, therefore, analyzes this operation between Brazil, a country with high interest rates and the United States, a country with low interest rates. In addition, the study aims to analyze the operation in a time of economic instability, from 2005 to2016, which includes the crisis of 2008 that strongly impacted the two economies.

In the beginning this thesis deals with the theory of the exchange rate, its quotations, significance of its economic effect and ultimately the parity rate of interest, which is divided into a covered and an uncovered interest parity. It is followed by the methodology, which includes formulas and procedures used to achieve the aim. The most important part is the practical part, which deals with the general presentation of selected countries (Czech Republic, Republic of Poland, Hungary, Republic of Croatia and Romania) in terms of significant macroeconomic indicators and also shows the development of the exchange rates and interest rates in those countries. Subsequently, the thesis focuses on the verification of the uncovered interest parity by means of a graphical analysis, a regression analysis and a paired t-test. In view of results of these methods the conclusion was reached, that the theory has not been proven. The last two chapters describe the differences between the results of the selected countries and the possible reasons for the failure of the uncovered interest rate parity.

Primary objective of this thesis was to analyse the relationship between exchange rate and interest rate within borders of a small open economy. Different theoretical approaches often present us with various, sometimes even opposing conclusions when it comes to the matter of direction and intensity of the causal influence between these two variables. From author's point of view it is important to perceive the interaction between exchange rate and interest rate as a dynamic process rather than a static relationship. The empirical analysis was conducted on monthly time series (2000-2012) of three selected small open economies -- Poland, Hungary and Czech Republic. Graphical analysis, linear regression, vector autoregression and cointegration analysis were selected as suitable tools for meeting the objective of this thesis. Models themselves presented us with interesting conclusions, for example a proof of the international Fisher effect, exchange rate causally affecting the interest rate (interest rate differential) in case of spot rates against euro. Another curious phenomena was the inflow of foreign debt capital, which, as it seems, was actually pulling the exchange rate down rather than pushing it up due to rising indebtedness of the economy.