Analysis of uncovered interest rate parity in a large economy

This bachelor's thesis analyzes the uncovered interest parity (UIP) and its impact on exchange rates of major economies. The theoretical part explains the functioning of foreign exchange markets and exchange rates, including the differences between nominal and real exchange rates. It also examines the determinants of nominal exchange rates such as interest rate differential, inflation differential, current account balance, and geopolitical situation. Additionally, the theoretical section includes a chapter on the theories of covered and uncovered interest parity. In the practical part, vector autoregressive (VAR) models were constructed, followed by impulse response analysis, which showed different responses to shocks in interest rate differentials across various currency pairs. Subsequent Granger tests did not confirm causality between interest rate differentials and exchange rates, except for the USD/AUD currency pair.