TESTING COVERED INTEREST PARITY UNDER FISHERIAN EXPECTATIONS

Covered interest parity (CIP) is tested in conventional and Fisherian frameworks using three-month treasury bill rates denominated in eight currencies against the dollar. Results of cointegration and coefficien t restriction tests are slightly more favourable for conventional CIP, while model selection tests are more strongly in favour of this versi on of the theory. One of the conclusions derived from the empirical ev idence is that arbitrage, rather than the integration of financial and commodity markets, is the force maintaining this international parity condition.