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Do Professional Forecasters Believe in Uncovered Interest Rate Parity?
Author(s)
Date Issued
2023-11
Date Available
2024-01-10T15:18:07Z
Abstract
No, not according to our data. Using a unique data set, we run panel regressions to test whether professional forecasters believe in uncovered interest rate parity (UIP).
Specifically, we test whether the interest rate expectations for individual forecasters are in line with their exchange rate expectations using the UIP condition. This new approach allows us to test directly whether forecasters believe in UIP. We find that professional forecasters generally do not believe in UIP across a range of currencies and horizons. Given the prevalence of the UIP condition in our international macro models, these results reiterate the importance of finding the drivers for these deviations.
Specifically, we test whether the interest rate expectations for individual forecasters are in line with their exchange rate expectations using the UIP condition. This new approach allows us to test directly whether forecasters believe in UIP. We find that professional forecasters generally do not believe in UIP across a range of currencies and horizons. Given the prevalence of the UIP condition in our international macro models, these results reiterate the importance of finding the drivers for these deviations.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
22
Series
UCD Centre for Economic Research Working Paper Series
WP2023/24
Copyright (Published Version)
2023 the Authors
Classification
F31
F37
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
File(s)
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Name
WP23_24.pdf
Size
715.18 KB
Format
Adobe PDF
Checksum (MD5)
b67de0ff893295bd8c963bcaa6edf243
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