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THE APPLICATION OF REGRESSION ANALYSIS IN TESTING UNCOVERED INTEREST RATE PARITY

100%
Kisielińska J., Czech K.
Metody Ilościowe w Badaniach Ekonomicznych
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2013
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vol. 14
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issue 1
232-242
EN
The aim of the paper is to evaluate and compare two linear regression models proposed by Froot and Frankel (1989) and to show their application in verification of the uncovered interest rate parity (UIP) hypothesis in the selected ten exchange rate markets. The paper shows that both models proposed by Froot and Frankel (1989) are formally equivalent, but they may give different regression results. Many researchers claim that uncovered interest rate parity tends to hold more frequently in emerging markets than in developed economies. The paper is focused on five developed and five emerging economies. It is partly confirmed that developing countries work better in terms of UIP.
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TESTING UNCOVERED INTEREST PARITY IN THE PLN/JPY FOREIGN EXCHANGE MARKET: A MARKOV-SWITCHING APPROACH

100%
Czech K. A.
Metody Ilościowe w Badaniach Ekonomicznych
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2017
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vol. 18
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issue 1
18-26
EN
Uncovered Interest Parity argues that a high-interest-rate currency tends to depreciate and a low-interest-rate currency to appreciate. Many researchers find opposite tendency in foreign exchange market. This puzzling feature of foreign exchange market is known as forward premium puzzle. The aim of the paper is to examine how exchange rate volatility influences the relationship between returns and interest rate differentials. Markov switching model is applied. It is shown that in regime of low volatility, in the PLN/JPY market, forward premium anomaly appears. However, during the time of high volatility the UIP holds.
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FOREIGN EXCHANGE RATES IN CENTRAL EUROPEAN ECONOMIES: NONLINEARITIES IN ADJUSTMENT TO INTEREST RATE DIFFERENTIALS

100%
Sznajderska A.
Metody Ilościowe w Badaniach Ekonomicznych
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2013
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vol. 14
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issue 2
229-239
EN
The aim of the paper is to examine the relation between foreign exchange rates and interest rate differentials in Poland, the Czech Republic, and Hungary. The exchange rate equations are inspired by the uncovered interest rate parity (i.e. the UIP condition). The results of empirical studies are usually contrary to the UIP condition. One of the explanations of this puzzle is the existence of certain nonlinearities. The nonlinearities appear because of transaction costs, central bank interventions, limits of speculations, hysteresis, or changes in risk perception. I estimate smooth transition autoregressive models. The threshold variable is an interest rate differential or a level of economic activity. I examine the exchange rates of USD and EUR and 1-, 3- and 6- months and 5- years interest rates. I also test various proxies for risk premium.
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