Abstract
There are many literatures devoted to the study of the uncovered interest parity (UIP); however, majority of them focus on whether UIP exists and only a few concentrate on the pattern of the UIP failure. By using a panel VAR approach, this paper compares the intensive carry trade period, between 2002 and 2005, and the pre-intensive carry trade period, between 1998 and 2001. The results show that during the intensive carry trade period UIP failure was caused by the self-fulfilling behaviour of investors. High interest rate currencies made investors believed that the currencies would appreciate and bided their price even higher. This finding may inspire a new concept of explaining the short run exchange rate movement and the
Recommended Citation
Law, Y. (2010). The uncovered interest rate parity failure from 2002 to 2005: An implicit consensus of carry trade. Lingnan Journal of Banking, Finance and Economics, 2. Retrieved from http://commons.ln.edu.hk/ljbfe/vol2/iss1/4