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RDP 9103: The Failure of Uncovered Interest Parity: Is it Near-Rationality in the Foreign Exchange Market?
Equation
μ
t
+
1
≡
E
t
(
W
t
+
1
)
=
W
t
[
x
t
'
E
(
z
t
+
1
)
+
l
+
r
t
+
1
us
]
and
V
t
(
W
t
+
1
)
=
W
t
2
[
x
t
'
Ω
x
t
+
V
t
r
t
+
1
us
+
2
x
t
'
cov
t
(
z
t
+
1
,
r
t
+
1
us
)
]
=
W
t
2
x
t
'
Ω
x
t
.
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