Long-Run Implications of the Covered Interest Rate Parity Condition: Evidence during the Recent Crisis and Non-Crisis Periods

Jun Nagayasu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the stationarity of forward premiums in foreign exchange markets. Considering a wide range of countries and contract periods and taking into account cross-sectional correlations and heterogeneities in nonstationary environments, we con�rmed mixed evidence of stationary forward premiums. Further analysis suggests that the nonstationary element has been attributable to regime shifts which are closely associated with the effects of the Lehman Shock and changing monetary policies. These effects can be captured by interest rates, leaving the covered interest parity condition as a valid economic concept at least in the long-run.

Keywords: Panel unit root tests; structural shifts; forward premiums; Lehman shock (search for similar items in EconPapers)
JEL-codes: C23 F31 (search for similar items in EconPapers)
Date: 2012-09-01
New Economics Papers: this item is included in nep-fdg and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/41566/1/MPRA_paper_41566.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/43945/1/MPRA_paper_43945.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:41566

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().