Which model generates the best predictions on the future spot rate?– a comparison between three different forms of the UIP model
There are many empirical studies that reject the forecasting power of the uncovered interest rate parity condition. This might be due to different reasons, of which one often stated is the existence of a risk premium. In this paper three versions of the conventional UIP model are tested in order to investigate which one that generates the best predictions on the future spot rate. One model without