Covered Interest Arbitrage: Then vs. Now

Ted Juhl, William Miles and Marc Weidenmier ()

No 10961, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce a new weekly database of spot and forward US-UK exchange rates as well as interest rates to examine the integration of forward exchange markets during the classical gold standard period (1880-1914). Using threshold autoregressions (TAR), we estimate the transactions cost band of covered interest differentials (CIDs) and compare our results to studies of more recent periods. Our findings indicate that CIDs for the US-UK rate were generally larger during the classical gold standard than any period since. We argue that slower information and communications technology during the gold standard period led to fewer short-term financial flows, higher transactions costs, and larger CIDs.

JEL-codes: F3 N2 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-ifn
Note: DAE IFM
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Citations: View citations in EconPapers (9)

Published as Juhl, Ted, William Miles and Marc D. Weidenmier. "Covered Interest Arbitrage: Then Versus Now," Economica, 2006, v73(290,May), 341-352.

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