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Covered Interest Parity Deviations: Macrofinancial Determinants
Author:
Mr. Eugenio M Cerutti
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,
Mr. Maurice Obstfeld
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Haonan Zhou null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 014
Language:
English
Publication Date:
16 Jan 2019
DOI:
https://doi.org/10.5089/9781484390122.001
ISBN:
9781484390122
ISSN:
1018-5941
Pages:
36
Keywords:
WP; U.S. dollar; cross-currency basis; cross-currency dollar basis; basis calculation; Covered Interest Parity; Interest Rate Differentials; Forward FX Market; dollar strength; investment option; time-series regression; dollar appreciation; Interest rate parity; Currencies; Global financial crisis of 2008-2009; Interbank rates; Money markets; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund