Deviation from Covered Interest Rate Parity in Korea

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

Testing Uncovered Interest Rate Parity Using LIBOR

We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration techniques by Westerlund (2007), we find that UIP holds for shortterm maturities, when market-specific he...

Interest Rate Parity in times of Turbulence: the Issue Revisited

Empirical studies on covered interest arbitrage suggest that the interest rate parity condition does not always hold during times of turbulence in the foreign exchange markets, implying market inefficiency. This paper considers two different approaches [Taylor (1989) and Clinton (1988)] to measuring deviations from interest rate parity for a period of turbulence in the foreign exchange markets ...

Uncovered Interest Parity in Crisis : The Interest Rate Defense in the 1990 s *

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...