Tests of real interest parity in international currency markets

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The purpose of this paper is to examine the behavior of real bilateral exchange rates for major currencies and test the hypothesis of real uncovered interest parity with risk premia, and forward looking expectations. It is plausible that the hypothesis of rational expectations cannot be rejected given the unit root nonstationarity of real exchange rates but it is not unlikely that unit root nonstationarity may be due to rational expectations in foreign exchange markets.
Original languageEnglish
Pages (from-to)167-191
Number of pages25
JournalJournal of Economics
Issue number2
Publication statusPublished - 1 Jun 1994

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