Please use this identifier to cite or link to this item:

The puzzling dual of the uncovered interest parity puzzle evidence from Pacific Rim capital flows

Authors Cook, David View this author's profile
Issue Date 2009
Source International review of economics & finance , v. 18, (3, Sp. Iss. SI), 2009, JUN, p. 449-456
Summary international financial arbitrage should prevent the existence of non-zero expected returns when borrowing in one currency and lending in another implying that interest differentials should predict exchange rate movements. The failure of interest differentials to act as an unbiased predictor of future exchange rate movements is referred to as the uncovered interest parity puzzle. This paper explores whether capital flows respond to these interest differentials in the context of a model in which dynamic adjustment costs keep capital from flowing immediately across borders. The paper finds little or even a negative relationship between expected excess returns on exchange rate adjusted U.S. money market rates (relative to domestic interest rates) and capital flows to the U.S. from Australia, Canada, Japan or Korea, (C) 2008 Elsevier Inc. All rights reserved.
ISSN 1059-0560
Language English
Format Article
Access View full-text via DOI
View full-text via Web of Science
View full-text via Scopus