Abstract
This paper provides direct empirical assessment of Uncovered Interest Rate Parity (UIP) for Pakistan. To Test UIP, wide range of maturities have been used and for estimation purpose, we used Johansen cointegration and Dynamic Ordinary Least Square (DOLS). We find that UIP does not hold for short to medium term maturities. However for the long term maturities i.e., 10-year, the result showes that the UIP holds. It means the exchange rate is better predicted by the long term interest rates. These findings suggest that the interventions in the foreign exchange market distort the price discovery mechanism of the foreign currency in the short to medium term. In the long run, however, the market fundamentals dictate the price discovery guiding the exchange rate to converge to its long run equilibrium.
ZINAZ AISHA , MUHAMMAD OMER. (2020) Testing Uncovered Interest Rate Parity for Pakistan, International Review of Management and Business Research, Volume 9, Issue 4 .
-
Views
779 -
Downloads
57
Article Details
Volume
Issue
Type
Language
