Graduation Year

Spring 2013

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Eric Hughson

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© 2013 Orian Davies

Abstract

High interest rate currencies tend to appreciate despite what is be implied by the uncovered interest parity. It is thought that the uncovered interest parity does not hold due to various risks, costs, liquidity issues, and monetary policies. There have been extensive studies into the cause of this phenomenon yet none have examined the period before the formation of the Federal Reserve in 1913. This study examines whether or not the uncovered interest parity holds between the UK, the US, France, Germany, the Netherlands, Belgium, Italy, Spain, and Portugal during this time period to determine if the absence of capital controls and monetary policies allow for the uncovered interest parity to hold. In the end, none of the 213 regressions testing all the country pairs across varying horizons came close to providing support for the uncovered interest parity.

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