Pacific Economic Review
Uncovered interest parity, Exchange rates, Financial market integration, Emerging markets
We characterize the relationship between ex post exchange rate depreciation and the interest differential for a set of countries that spans both developed and emerging market economies. The measured ex post uncovered interest differentials in terms of both levels and absolute values are then related to measures of trade and financial openness, financial development, government budget balances, institutional development, and exchange rate regimes. We find that there is wide diversity in the coefficient relating depreciations and interest differentials. Some of these differing results can be attributed to differences in inflation volatility, financial development, trade openness, capital account openness, legal development, and the nature of the exchange rate regimes. The robust results are mainly found in the developing/emerging market country grouping.
Ito, Hiro, and Menzie Chinn. "Price-based Measurement of Financial Globalization: A Cross-Country Study of Interest Rate Parity." Pacific Economic Review 12.4 (2007): 419-444.