The well-known uncovered interest parity puzzle arises from the empirical regularity that, among developed country pairs, the high interest rate country tends to have high expected returns on its short term assets. At the same time, another strand of the literature has documented that high real...

The well-known uncovered interest parity puzzle arises from the empirical regularity that, among developed country pairs, the high interest rate country tends to have high expected returns on its short term assets. At the same time, another strand of the literature has documented that high real...

This paper studies the effect of exchange rate uncertainty on the deviations of Covered Interest Rate parity. I develop a method for estimating the daily uncertainty via endogenous factor clustering to determine the currency grouping and an optimal number of groups and general factors explaining...