Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates

Shin-ichi Fukuda ()

No 21938, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In the post Lehman period, the interest rate of the US dollar became low on the forward contract because of“flight to quality” to the international currency. However, in the Euro crisis, that of the Sterling pound became equally low, while the other European currencies such as the Danish kroner increased its liquidity premium. By using secured rates, the following analysis examines why the Sterling pound and the Danish kroner showed asymmetric features in deviations from the covered interest parity (CIP) condition. The regression results suggest that there was a structural break in the determinants of the deviations across the European currencies in the two crises. Currency-specific money market risk was critical in explaining the deviations in the global financial crisis (GFC), while EU banks’ credit risk and market risk were useful in explaining the deviations in the Euro crisis. In particular, EU banks’ credit risk and market risk had asymmetric effect on the deviations. The asymmetry explains different features between the Sterling pound and the Danish kroner.

JEL-codes: F36 G12 G15 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
Note: IFM
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Citations: View citations in EconPapers (6)

Published as Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates , Shin-ichi Fukuda. in International Finance in the Global Markets , Aoki, Fukuda, Hoshi, and Kano. 2016
Published as Shin-ichi Fukuda, 2016. "Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates," Journal of the Japanese and International Economies, .

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Journal Article: Strong sterling pound and weak European currencies in the crises: Evidence from covered interest parity of secured rates (2016)
Chapter: Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates (2015)
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