We propose an easy-to-implement conditional currency carry trade (CT) strategy that excludes regimes for which UIP is likely to hold, namely when interest rate differentials (IRDs) are very large during high foreign exchange (FX) volatility regimes. We find that conditioning a CT strategy on...

This paper analyzes the properties of multivariate tests of purchasing power parity (PPP) that fail to take heterogeneity in the speed of mean reversion across real exchange rates into account. We compare the performance of homogeneous and heterogeneous unit root testing methodologies. The...