Abstract
This article provides an overview of the uncovered interest parity assumption. It traces the history of the concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses different interpretations of the evidence and the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multi-period models of open economies and, although its validity is strongly challenged by the empirical evidence, at least at short time horizons, its retention in macroeconomic models is supported on pragmatic grounds by the lack of much empirical support for existing models of the exchange risk premium.
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Isard, P. (2018). Uncovered Interest Parity. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2285
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2285
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