@article{Switching:648,
      recid = {648},
      author = {van Norden, Simon},
      title = {A Regime Switching Approach to Uncovered Interest Parity},
      publisher = {Bank of Canada},
      address = {1989},
      pages = {1 online resource (65 pages)},
      abstract = {This paper reviews the empirical evidence on violations of  uncovered interest parity and explores whether the evidence  is consistent with the behaviour of speculative bubbles.  The problems of testing for bubbles in exchange rates,  without an accepted model of fundamentals, are then  examined and a variety of tests are suggested. The  switching regression test is the most advanced of these and  it offers a robust test of the null hypothesis of  time-varying risk premia. It may also explain why exchange  rate changes seem to fit mixed normal distributions and why  they appear to be conditionally heteroscedastic. Extensive  tests are run using weekly forward rate and survey data for  seven major exchange rates. The results give a very strong  and robust rejection of various risk-premium models and  show that exchange rates fit a switching process, as the  bubble model predicts. The switching regression also  suggests a simple measure of the degree of exchange rate  misalignment.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/648},
      doi = {https://doi.org/10.34989/swp-1989-1},
}