Exchange Rate Economics

Exchange Rate Economics

The Uncovered Interest Parity Puzzle and Other Anomalies

Norman C. Miller

The Uncovered Interest Parity (UIP) puzzle has remained a moot point since it first circulated economic discourse in 1984 and, despite a number of attempts at a solution, the UIP puzzle and other anomalies in Exchange Rate Economics continue to perplex economic thought in international finance. This fundamental book fill gaps in scholarly literature by amalgamating key discourse to generate synthesis models which appear consistent with the UIP puzzle and related anomalies, uniquely bringing them together in one place. Through a comprehensive and current review of the literature, Norman C. Miller reveals new explanations for exchange rate anomalies and offers an alternative approach towards the UIP puzzle, stimulating and guiding future research.

Chapter 9: Summary and future work

Norman C. Miller

Subjects: economics and finance, financial economics and regulation, history of economic thought, international economics


This chapter summarizes the material from the previous chapters, and it makes several suggestions for future work. First, it restates the objectives of this book. Then it reviews the essential features of the alternative UIP frameworks developed in Chapters 5, 6 and 8. This is followed by a list of all the puzzling facts and anomalies investigated here. Then comes a summary of the book’s explanations for each of the puzzles. The chapter ends with suggestions for future work. One objective has been to list and summarize many puzzling facts and anomalies associated with exchange rates, and to review existing explanations for each. Section 9.3 contains a list of the ten puzzles given in Chapter 1, and six others addressed in Chapters 7 and 8. The primary objective of this book has been to develop UIP frameworks that are consistent with these puzzles. These are Synthesis Model I in Chapter 5, Synthesis Model II in Chapter 6, and a regressive expectations UIP model in Chapter 8. Each of these models is intertemporal in nature. Traditional thinking about UIP is consistent with the assumption that investors have a speculative time horizon of only one period. In contrast, the intertemporal approach allows carry-trade to encompass many time periods. Ex ante intertemporal UIP holds when the anticipated cumulative net interest from carry-trade over the optimum speculative time horizon, n(t), is offset by the anticipated cumulative depreciation of the high interest rate currency over the same time horizon.

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