Five Facts about the UIP Premium / Ṣebnem Kalemli-Özcan, Liliana Varela.

Format:

Book

Author/Creator:

Kalemli-Özcan, Ṣebnem.

Contributor:

National Bureau of Economic Research.

Varela, Liliana.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28923.

NBER working paper series no. w28923

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We uncovered 5 novel facts on Uncovered Interest Parity (UIP) deviations for 22 emerging markets (EM). The average UIP premium--or the excess currency return--is: 1) always positive with large time-varying volatility; 2) correlates negatively with capital flows; 3) co-moves with global risk sentiments. 4) Using realized exchange rate changes or expected changes from survey data delivers the same result. 5) Policy uncertainty is the underlying primitive, capturing the high-frequency-variation in the UIP deviations, since country and currency risk are both captured by the interest rate differentials. Only fact (3) holds for advanced countries' excess currency returns.

Notes:

Print version record

June 2021.