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Uncovered Interest Parity and the Financial Crisis of 2007: An econometric study of the robustness of the uncovered interest parity over different time periods, with varying economic stability.
Jönköping University, Jönköping International Business School, JIBS, Economics.
Jönköping University, Jönköping International Business School, JIBS, Economics.
2019 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The current intellectual climate regarding economics seems to be at an agreement regarding the theory of uncovered interest parity and its unreliability within real life application. The purpose of this thesis is to test how the theory holds over periods with varying economic stability, both using a short- and long-horizon test in order to establish the usefulness of uncovered interest parity as a predictor for exchange rate movements. The short-horizon test will utilize the interbank offering rate, and the long-horizon test the yield to maturity of government 10-year benchmark bonds as the interest rate. The sample period is 2000 to 2018, covering the financial crisis of 2007. We will focus on three different time periods: pre-crisis, crisis and post-crisis. We will use ordinary least squares (OLS) regression and an extreme sampling. From the regressions we conclude that most of the time periods move against the uncovered interest parity, where only the crisis period is in line with the theory. The extreme sampling supports this result, as larger interest differentials provide the rational expectations with more predictive power of the future spot exchange rate.

Place, publisher, year, edition, pages
2019. , p. 45
Keywords [en]
Uncovered interest parity, interest parity, interbank offering rates, yield to maturity, short-horizon, long-horizon
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-44249OAI: oai:DiVA.org:hj-44249DiVA, id: diva2:1322036
Subject / course
JIBS, Economics
Supervisors
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Available from: 2019-06-20 Created: 2019-06-10 Last updated: 2019-06-20Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf