Two explanations are given for why nominal or real returns differ across currencies: foreign exchange risk premia and systematic (rational) forecast errors. This study reexamines three parity conditions in international finance, uncovered interest parity, purchasing power parity, and real...

This paper examines evidence on interest differentials under the Bretton Woods system of fixed exchange rates and under the flexible rate system which succeeded it. Under the Bretton Woods system, many countries resorted to capital controls in an attempt to pursue independent monetary policies....