Testing the Validity of Uncovered Interest Parity for BRICS Countries : A Dynamic OLS Approach

The standard uncovered interest parity (UIP)—a logarithm version—is inappropriate for currencies with a high interest rate because the interest rate (i) does not satisfy the ln(1 + i) = i condition. Therefore, this study employs the precise form of UIP and evaluates its empirical validity using a sample of BRICS member nations. This study uses the panel cointegration technique; the empirical results reveal that gross domestic return and uncovered gross foreign return are cointegrated in the long run for all BRICS members. The dynamic ordinary least squares approach is used to estimate the long-run cointegrating coefficients for each nation and for the group as a whole. The findings demonstrate that UIP holds for all BRICS members except for China, indicating that the financial markets of Brazil, Russia, India, and South Africa are fully integrated with the United States financial market