This paper constructs an intertemporal model of the spot and forward markets for foreign exchange and shows that in equilibrium the forward market is unbiased, i.e., the forward rate is equal to the expected spot rate which will prevail in the market next period. This holds true as long as the...

The paper presents both the theoretical account of the issue of foreign exchange risk premium and the actual estimates of the time-varying risk premium for the cases of the Czech koruna to euro and US dollar. The risk premium is modelled within a state space framework and estimated using the...

Finding satisfactory explanations of deviations from uncovered interest rate parity (UIRP) has proved to be a frustrating experience for Neoclassical economists. Studies have focused on the role of risk, but thus far no one has been able to put forward a source thereof that can account for the...

The purpose of this paper is to show the superiority of Keynes’ approach by comparing three system dynamics models of the relationship among interest and exchange rates: one based on traditional uncovered interest rate parity, one with risk, and one with forecast confidence. It will be...

According to Frankel (1992) in order to find financial integration from Feldstein Horoika (FH, 1980) model, the real interest parity must hold. This paper estimates the degree of financial market integration of South Asian countries i.e. Pakistan, India, Bangladesh, Sri Lanka and Nepal with both...

This paper asks why Asia-Pacific residents issue debt in offshore markets and considers the implications for domestic debt markets. We use unit record data for bond issuance by non-government residents of Australia, Hong Kong, Korea, Japan and Singapore to link the decision to issue offshore to...

Covered interest rate parity assumes that there is no risk premium on the hedged returns on currencies. However, empirical evidence indicates that risk premiums are not identically zero, and this is referred to as the forward premium puzzle. We show that there exist market regimes, within which...