EconPapers    
Economics at your fingertips  
 

Covered interest parity lost: understanding the cross-currency basis

Claudio Borio, Robert McCauley, Patrick McGuire and Vladyslav Sushko

BIS Quarterly Review, 2016

Abstract: Covered interest parity verges on a physical law in international finance. And yet it has been systematically violated since the Great Financial Crisis. Especially puzzling have been the violations since 2014, even once banks had strengthened their balance sheets and regained easy access to funding. We offer a framework to think about these violations, stressing the combination of hedging demand and tighter limits to arbitrage, which in turn reflect a tighter management of risks and bank balance sheet constraints. We find empirical support for this framework both across currencies and over time.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (127)

Downloads: (external link)
http://www.bis.org/publ/qtrpdf/r_qt1609e.pdf (application/pdf)
http://www.bis.org/publ/qtrpdf/r_qt1609e.htm (text/html)

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:bis:bisqtr:1609e

Access Statistics for this article

BIS Quarterly Review is currently edited by Christian Upper

More articles in BIS Quarterly Review from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().

 
Page updated 2025-03-31
Handle: RePEc:bis:bisqtr:1609e