Covered Interest Parity Deviations

Tests of Covered Interest Rate Parity

ECEN’FLY there has been considerable interest in and investigations of whether the covered interest parity (CIP) holds. At the inicroeconomic level, CIP is important because is it a direct consequence of covered interest arbitrage. Its failure to hold would suggest 1) that markets are inefficient in the sense that traders do not take advantage of known profit opportunities, 2) that legal restri...

Deviations from Uncovered Interest Rate Parity: A Post Keynesian Explanation

Regional Liquidity Risk and Covered Interest Parity during the Global Financial Crisis :

Abstract During the global financial crisis, there were substantial deviations from covered interest parity (CIP) condition. In particular, during the post Lehman period, the US dollar interest rate became very low on the forward market, as compared to the rate suggested by the CIP condition. However, the deviations from CIP condition varied not only across currencies but also across markets. A...

A Dynamic Trading Strategy Approach to Deviations from Uncovered Interest Parity

Foreign exchange predictability is explored from the standpoint of generating explicit dynamic strategies. These are used to assess the economic significance and economic magnitude of the predictability present in exchange rates. It is found that considering the true out of sample behavior of certain dynamic foreign exchange strategies greatly reduces the magnitude of previously reported puzzle...

Uncovered Interest Parity in Crisis

Abstract This paper tests for uncovered interest parity (UIP) using daily data for twenty-three developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of exchange rate changes on interest differentials yields a positive coefficient (which is sometime...