Examining the Validity of Uncovered Interest Rate Parity in Same Emerging Markets

Abstract

This study examines the validity of uncovered interest rate parity in emerging markets including Turkey, South Africa, Mexico, Colombia and Indonesia. To this end, a conventional model and a stationarity analysis of these countries' risk premiums are performed. The results of the conventional model show that uncovered interest rate parity does not hold for any country under the study. However, the findings based on the stationarity analysis of the countries' risk premiums indicate that uncovered interest rate parity may hold for all the countries under the study. This finding means that alternative models may be important for examining the validity of uncovered interest rate parity.