Is the Carry Trade strategy an explanation of the Uncovered Interest Parity puzzle?
This paper examines the uncovered interest rate parity (UIP) and extends the analysis in Spronk, Verschoor and Zwinkels (2013) by looking at the UIP between Sweden and the United Kingdom. The flaws of the UIP and the reasons for why it does not seem to hold, has been called the UIP puzzle. The thesis tests if the UIP puzzle can be explained by constructing a heterogeneous agent model with a carry