This paper presents a dynamic model of optimal currency returns with a hidden Markov regime switching process. We postulate a weak form of interest rate parity that the hedged risk premiums on currency investments are identical within each regime across all currencies. Both the in-sample and the out-ofsample data during January 2002 March 2005 strongly support this hypothesis. Observing past as...

Empirical studies on covered interest arbitrage suggest that the interest rate parity condition does not always hold during times of turbulence in the foreign exchange markets, implying market inefficiency. This paper considers two different approaches [Taylor (1989) and Clinton (1988)] to measuring deviations from interest rate parity for a period of turbulence in the foreign exchange markets ...

This paper examines uncovered interest rate parity (UIRP) and the expectations hypotheses of the term structure (EHTS) at both short and long horizons. The statistical evidence against UIRP is mixed and is currencynot horizon-dependent. Economically, the deviations from UIRP are less pronounced than previously documented. The evidence against the EHTS is statistically more uniform, but, economi...

The purchasing power parity (PPP) is generally accepted as the exchange rate projection between two countries relative to their inflation rate. However, despites many researches in past years, answer whether PPP holds, remains an on-going debate. prior are criticized for heavy reliance on bilateral which consists of short time-series or uses multilateral real effective (REER) constructed by fix...

abstract i n this paper, we investigate the existence and the nature of real exchange rate misalignment in organization of the petroleum exporting countries (opec). to do this we estimated a cross country basic real exchange rate determination model for 1990-2012 and extracted historic trend of misalignment. the results imply that all opec countries have had misalignment -of different kinds tho...

This paper studies how international real interest rate shocks can drive business cycles in an emerging economy. We first present evidence that, in emerging economies, real interest rates and real estate prices are negatively correlated and real interest rates are countercyclical. Motivated by this evidence, we develop a model of a small open economy, where entrepreneurs are borrowing constrain...

In this paper, we test the real interest parity, uncovered interest parity, and purchasing power parity (PPP) for China against the US, European Union, the UK, and Japan. The real interest parity is an aggregate measure of economic integration, which can be decomposed into the integration of two major markets: the financial market and the goods market. The integration of each market can be furt...

Costs of transport fuels are the most significant components household expenditures, and price petrol is particular importance for commercial residential sectors in Australia. Regarding central role petrol, an in-depth understanding behaviours essential. Previous studies mostly focused on markets metropolitan areas, there exists a gap regional literature. Therefore, this paper aimed to develop ...

This survey represents a recollection of the contributions prominent Austrian economists on subject exchange rate determination (Mises, Hayek and Haberler). We review theoretical fundaments that allow for comprehensive understanding microeconomic forces determine rates. Then we examine Purchasing Power Parity Theory, both from neoclassical viewpoint. Finally inspect international movements mone...