Household consumption key for rate riddle

Households' consumption habits explain the uncovered interest rate parity puzzle, a new paper from the Bank of England reveals.

The research examines the contradiction between the uncovered interest rate parity puzzle's findings and the empirical observation that high interest-rate currencies tend to appreciate. The paper shows that precautionary savings effects, where savings rise in response to increased uncertainty, help explain this. These savings effects will only occur under the assumption