TY  - JOUR
AU  - Chinn,Menzie D.
AU  - Meredith,Guy
TI  - Testing Uncovered Interest Parity at Short and Long Horizons during the Post-Bretton Woods Era
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11077
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11077
L1  - http://www.nber.org/papers/w11077.pdf
N1  - Author contact info:
Menzie D. Chinn
Dept. of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-7397
Fax: 608/262-2033
E-Mail: mchinn@lafollette.wisc.edu

Guy Meredith
International Monetary Fund
700 19th Street, NW
Washington, DC 20431
E-Mail: gmeredith@imf.org
AB  - The hypothesis that interest rate differentials are unbiased predictors of future exchange rate movements has been almost universally rejected in empirical studies. In contrast to previous studies, which have used short-horizon data, we test this hypothesis using interest rates on longer-maturity bonds for the U.S., Germany, Japan and Canada. The results of these long-horizon regressions are much more positive -- the coefficients on interest differentials are of the correct sign, and most are closer to the predicted value of unity than to zero. These results are robust to the use of different data frequencies, sample periods, yield definitions, and base currencies. We appeal to an econometric interpretation of the results, which focuses on the presence of simultaneity in a cointegration framework.
ER  -