01855cas a2200265 a 4500 AALejournalIMF004168 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451863963 1018-5941 BD-DhAAL BD-DhAAL Valente, Giorgio. Nonlinearity in Deviations From Uncovered Interest Parity : An Explanation of the Forward Bias Puzzle / Giorgio Valente, Gene Leon, Lucio Sarno. Washington, D.C. : International Monetary Fund, 2006. 1 online resource (44 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research. Mode of access: Internet Leon, Gene. Sarno, Lucio. IMF Working Papers; Working Paper ; No. 2006/136 Full text available on IMF http://elibrary.imf.org/view/journals/001/2006/136/001.2006.issue-136-en.xml IMF e-Library