IMF Working Papers

Covered Interest Parity Deviations: Macrofinancial Determinants

By Eugenio M Cerutti, Maurice Obstfeld, Haonan Zhou

January 16, 2019

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Eugenio M Cerutti, Maurice Obstfeld, and Haonan Zhou. Covered Interest Parity Deviations: Macrofinancial Determinants, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).

Subject: Banking, Currencies, Financial crises, Financial markets, Financial services, Global financial crisis of 2008-2009, Interbank rates, Interest rate parity, Money, Money markets

Keywords: Basis calculation, Covered Interest Parity, Cross-currency basis, Cross-currency dollar basis, Currencies, Dollar appreciation, Dollar strength, Forward FX Market, Global, Global financial crisis of 2008-2009, Interbank rates, Interest Rate Differentials, Interest rate parity, Investment option, Money markets, Time-series regression, U.S. dollar, WP

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/014

  • Stock No:

    WPIEA2019014

  • ISBN:

    9781484390122

  • ISSN:

    1018-5941

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