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Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective

Zhang, Yifei
http://orcid.org/0000-0002-9029-0536
http://rave.ohiolink.edu/etdc/view?acc_num=miami1532698263083492

Abstract Details

2018, Master of Arts, Miami University, Economics.
In recent years, close to zero nominal interest rate becomes a norm in several developed economies. This paper is concerned with how extremely low interest rates or Zero Lower Bound (ZLB) affects the Uncovered Interest Rate Parity (UIP). Using exchange rate data and interest rates with different terms for U.S. Dollar, British Pound, Euro, Japanese Yen, and Swiss Franc, I am able to statistically reject UIP in all cases based on in-sample fitting. Besides, I find the estimated coefficient of the one-month interest differential becomes much more volatile as the interest rate gets closer to ZLB, while this change in volatility is less obvious when longer term interest rates are used in the regression. Finally, I consider for methods related to UIP in order to forecast the future exchange rate, and for each method, I compute the out-of-sample mean squared prediction errors. I find that using the interest rate differential generally does not improve the forecast, meaning that UIP can be viewed unfavorably from the forecasting perspective.
Jing Li (Advisor)
George Davis (Committee Member)
Kimberly Berg (Committee Member)
50 p.
Economics
Zero Lower Bound; Uncovered Interest Rate Parity

Recommended Citations

Citations

  • Zhang, Y. (2018). Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective [Master's thesis, Miami University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=miami1532698263083492

    APA Style (7th edition)

  • Zhang, Yifei. Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective. 2018. Miami University, Master's thesis. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=miami1532698263083492.

    MLA Style (8th edition)

  • Zhang, Yifei. "Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective." Master's thesis, Miami University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=miami1532698263083492

    Chicago Manual of Style (17th edition)

miami1532698263083492
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© 2018, some rights reserved.Creative Commons License Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective by Yifei Zhang is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. Based on a work at etd.ohiolink.edu.
This open access ETD is published by Miami University and OhioLINK.