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Pacific Economic Review

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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.


Authors' version of an article subsequently published in the Pacific Economic Review, volume 12, issue 4, October 2007, pages 419-444. Version of record available at



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