Covered Interest Parity: The Long Run Evidence

Olivier Accominotti, David Chambers, Jason Cen and Victor Degorce

No 21820, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Employing a novel daily dataset for 19 advanced-economy currencies over the years 1963–2025, we find that, contrary to the prevailing view, deviations from the covered interest parity (CIP) condition were both large and frequent over the long-run. The 2000–06 period immediately preceding the Global Financial Crisis when CIP held unusually closely is therefore the exception rather than the period that followed. The long-run pattern in CIP deviations maps closely to measures of intermediary frictions and FX swap market imbalances. Our findings indicate that intermediary frictions have been a persistent feature of international financial markets over the past six decades.

Keywords: Foreign; exchange (search for similar items in EconPapers)
JEL-codes: F31 G15 N10 N20 (search for similar items in EconPapers)
Date: 2026-08
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