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The Uncovered Interest Rate Parity Failure From 2002 To 2005 : An Implicit Consensus Of Carry Trade, Yui Law
The Uncovered Interest Rate Parity Failure From 2002 To 2005 : An Implicit Consensus Of Carry Trade, Yui Law
Lingnan Journal of Banking, Finance and Economics
There are many literatures devoted to the study of the uncovered interest parity (UIP); however, majority of them focus on whether UIP exists and only a few concentrate on the pattern of the UIP failure. By using a panel VAR approach, this paper compares the intensive carry trade period, between 2002 and 2005, and the pre-intensive carry trade period, between 1998 and 2001. The results show that during the intensive carry trade period UIP failure was caused by the self-fulfilling behaviour of investors. High interest rate currencies made investors believed that the currencies would appreciate and bided their price even …