Covered Interest Parity Deviations: Macrofinancial Determinants

Eugenio Cerutti, Maurice Obstfeld and Haonan Zhou

No 2019/014, IMF Working Papers from International Monetary Fund

Abstract: 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).

Keywords: WP; U.S. dollar; cross-currency basis; cross-currency dollar basis; basis calculation; Covered Interest Parity; Interest Rate Differentials; Forward FX Market; dollar strength; investment option; time-series regression; dollar appreciation; Interest rate parity; Currencies; Global financial crisis of 2008-2009; Interbank rates; Money markets; Global (search for similar items in EconPapers)
Pages: 36
Date: 2019-01-16
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Covered interest parity deviations: Macrofinancial determinants (2021)
Chapter: Covered Interest Parity Deviations: Macrofinancial Determinants (2020)
Working Paper: Covered Interest Parity Deviations: Macrofinancial Determinants (2019)
Working Paper: Covered Interest Parity Deviations: Macrofinancial Determinants (2019)
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