Uncovered interest parity, forward guidance and the exchange rate

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• dc.contributor.author Galí, Jordi, 1961-
• dc.date.accessioned 2021-03-23T11:00:55Z
• dc.date.issued 2021
• dc.description.abstract Under uncovered interest parity (UIP), the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected. Empirical evidence using U.S., euro area and UK data points to a substantial deviation from that invariance prediction: expectations of interest rate differentials in the near (distant) future are shown to have much larger (smaller) effects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.en
• dc.description.sponsorship I have benefited from comments by Jón Steinsson, Shogo Sakabe, Philippe Bacchetta, Wenxin Du, Ken West, Antoine Martin, Marty Eichenbaum, Anna Lipinska, Mick Devereux, Charles Engel, three anonymous referees, and participants at seminars and conferences at CREI‐UPF, Banco de España, SAEe 2017, Sveriges Riksbank, Bocconi, Bank of Canada, ECB, JMCB‐NY Fed, NBER IFM Meeting, and University of Edinburgh. I thank Philippe Andrade, Hervé le Bihan, Emanuel Moench and Benson Durham for help with the data. Angelo Gutiérrez, Christian Hoynck, and Cristina Manea provided excellent research assistance. I acknowledge financial support from the CERCA Programme/Generalitat de Catalunya and the Severo Ochoa Programme for Centres of Excellence.
• dc.format.mimetype application/pdf
• dc.identifier.citation Galí J. Uncovered interest parity, forward guidance and the exchange rate. Journal of Money, Credit and Banking. 2021 Feb 5;52(52):465-96. DOI: 10.1111/jmcb.12759
• dc.identifier.doi http://dx.doi.org/10.1111/jmcb.12759
• dc.identifier.issn 0022-2879
• dc.identifier.uri http://hdl.handle.net/10230/46902
• dc.language.iso eng
• dc.publisher Wiley
• dc.relation.ispartof Journal of Money, Credit and Banking. 2021 Feb 5;52(52):465-96
• dc.rights This is the peer reviewed version of the following article: Galí J. Uncovered interest parity, forward guidance and the exchange rate. Journal of Money, Credit and Banking. 2021 Feb 5; 52(52): 465-496, which has been published in final form at http://dx.doi.org/10.1111/jmcb.12759. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.subject.keyword Forward guidance puzzleen
• dc.subject.keyword Uncovered interest rate parityen
• dc.subject.keyword Unconventional monetary policiesen
• dc.subject.keyword Open economy New Keynesian modelen
• dc.title Uncovered interest parity, forward guidance and the exchange rateen
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/acceptedVersion