NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Interest Rate Term Premiums and the Failure of the Speculative Efficiency Hypothesis: A Theoretical Investigation

Carol L. Osler

NBER Working Paper No. 3060
Issued in August 1989
NBER Program(s):The International Trade and Investment Program, The International Finance and Macroeconomics Program

This paper develops a new parity condition for international financial markets which relates differences between the forward exchange rate and the expected future exchange rate to interest rate term premiums. It begins with the general proposition that VIP cannot hold for all maturity horizons if interest rate term premiums are imperfectly correlated across countries and expectations are rational. The conditions under which VIP could hold for multiple horizons, under these two assumptions, are found to be very restrictive. It is argued that if VIP holds at all under these circumstances, it is only likely to hold at a very short time horizon. Finally, it is shown that under these assumptions, if VIP holds at the shortest time horizon then the difference between forward exchange rates and expected future spot rates at all other horizons will be the difference in expected term premiums at each maturity.

download in pdf format
   (289 K)

download in djvu format
   (206 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3060

Published: Osler, C. L. "Interest Rate Term Premiums And The Failure Of Uncovered Interest Parity," Journal of International Financial Markets, Institutions and Money, 1992, v2(2), 1-25.

Users who downloaded this paper also downloaded* these:
Osler w2681 Terms of Trade and the Transmission of Output Shocks in a Rational Expectations Model
Bilson w0474 The "Speculative Efficiency" Hypothesis
Hendershott and Villani w0725 Savings and Loan Usage of the Authority to Invest in Corporate Debt
Sachs w1830 High Unemployment in Europe: Diagnosis and Policy Implications
Salinger and Summers w0757 Tax Reform and Corporate Investment: A Microeconometric Simulation Study
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us