NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimation and Hypothesis Testing with Restricted Spectral Density Matrices: An Application to Uncovered Interest Parity

Danny Quah, Takatoshi Ito

NBER Technical Working Paper No. 50
Issued in September 1989
NBER Program(s):   ME

This paper explores an econometric estimation technique for dynamic linear models. The method combines the analytics of moving average solutions to dynamic models together with computational advantages of the Whittle likelihood. A hypothesis of interest to international and financial economists is represented in the form of cross-equation restrictions and tested under the technique. This paper employs data on Japanese yen- and U.S. dollar-denominated interest rates and yen/dollar exchange rates to examine the hypothesis of uncovered interest parity under rational expectations.

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Document Object Identifier (DOI): 10.3386/t0050

Published: "Hypothesis Testing with Restricted Spectral Density Matrices, with an Application to Uncovered Interest Parity" From International Economic Review, Vol. 30, No. 1, pp. 203-215, (February 1989).

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