A rank approach for studying cross-currency bases and the covered interest rate parity

Daniel Ordoñez-Callamand, Jose Gomez-Gonzalez, Santiago Gomez-Malagon () and Luis Melo-Velandia
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Santiago Gomez-Malagon: Banco de la República de Colombia

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We use the recently developed panel rank-cointegration test proposed by Pedroni et al. [2015] to check for the stability conditions of the cross-country money market interest rate bases. Using weekly information on short-term interest rates and spot and forward exchange rates for a set of 20 European economies during 2005-2017, we show that in most cases these bases are non-stationary, implying the failure of the Covered Interest Rate Parity condition. Concretely, a mean-reverting behavior is encountered in only two cases. The first includes Greece, Italy and Portugal, while the second Belgium, France and Germany.

Keywords: Covered Interest Rate Parity; Nonparametric rank tests; Cointegration; Time series (search for similar items in EconPapers)
JEL-codes: C12 C33 E43 (search for similar items in EconPapers)
Pages: 12
Date: 2017-05
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://doi.org/10.32468/be.994 (application/pdf)

Related works:
Journal Article: A rank approach for studying cross-currency bases and the covered interest rate parity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:994

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