We thank the Social Sciences and Humanities Research Council of Canada and the Center of International Business Studies at the University of British Columbia for financial support, and Lorenzo Garlappi, Khang Min Lee, Steve Milos, David Peterson, and Jim Storey for research assistance. We thank Michael Adler, Jonathan Berk, Gordon Bodnar, Michael Brennan, Mick Devereux, Kathy Dewenter, Glen Donaldson, Bernard Dumas, Rick Green, Vasant Naik, Piet Sercu, Stan Zin, and participants at various seminars and conferences. We thank two referees and the editor, René Stulz, for comments. The usual disclaimer applies.
An Examination of Uncovered Interest Rate Parity in Segmented International Commodity Markets
Article first published online: 18 APR 2012
1997 The American Finance Association
The Journal of Finance
Volume 52, Issue 5, pages 2145–2170, December 1997
How to Cite
HOLLIFIELD, B. and UPPAL, R. (1997), An Examination of Uncovered Interest Rate Parity in Segmented International Commodity Markets. The Journal of Finance, 52: 2145–2170. doi: 10.1111/j.1540-6261.1997.tb02756.x
- Issue published online: 18 APR 2012
- Article first published online: 18 APR 2012
We examine the effect of segmented commodity markets on the relation between forward and future spot exchange rates in a dynamic economy. We calculate the slope coefficient in our theoretical economy from regressing exchange rate changes on forward premia. With reasonable parameter values, the slope coefficient is less than unity. However, even for extreme parameters the slope is not less than zero, as found in the data. A negative slope coefficient in a nominal version of the model requires the covariance between monetary shocks and relative output shocks to be significantly negative, in contrast to the covariance in the data.