Another Look at the Uncovered Interest Rate Parity: Have We Missed the Fundamentals?

Pikoulakis, Emmanuel V.; Wisniewski, Tomasz Piotr

doi:10.2139/ssrn.1296776

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Another Look at the Uncovered Interest Rate Parity: Have We Missed the Fundamentals?

12 Pages Posted: 9 Nov 2008 Last revised: 10 Jan 2011

See all articles by Emmanuel V. Pikoulakis

Tomasz Piotr Wisniewski

Open University, UK

Date Written: November 6, 2008

Abstract

In this paper we uncover a version of the uncovered interest parity condition nesting in a portfolio balance model of the consumption capital asset pricing variety. In particular, the model we present explains and supports the existence of "excess returns" - returns in excess of those explained by UIP. This is good news for the UIP and the CCAPM considering that, to quote MacDonald (1995), "...researchers have been unable to find a statistically significant link between the excess of relative interest rates over the expected exchange rate change (the risk premium)..."

Keywords: Exchange Rates, Uncovered Interest Rate Parity, Consumption Capital Asset Pricing Model

JEL Classification: F31, G11, G15

Suggested Citation: Suggested Citation

Pikoulakis, Emmanuel V. and Wisniewski, Tomasz Piotr, Another Look at the Uncovered Interest Rate Parity: Have We Missed the Fundamentals? (November 6, 2008). Available at SSRN: https://ssrn.com/abstract=1296776 or http://dx.doi.org/10.2139/ssrn.1296776