Testing for long horizon UIP using PPP-Based Exchange Rate Expectations

This paper revisits the uncovered interest parity relation. It supplements existing work in two ways: It focuses on long instead of short-term interest rates, and, related to that, employs exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major floating currencies over the period 1975-1997, the paper cannot support the notion of further increases in UIP-validation beyond that associated with the wave of financial market liberalization and deregulation in the early 1980s. © 2001 Elsevier Science B.V