Deviations From Uncovered Interest Parity

Author : Mr.Evan Tanner
Publisher : International Monetary Fund
Page : 25 pages
File Size : 50,7 Mb
Release : 1998-08-01
Category : Business & Economics
ISBN : 9781451941647

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Deviations From Uncovered Interest Parity by Mr.Evan Tanner Pdf

Ex-post deviations from uncovered interest parity (UIP) – realized differences between dollar returns on identical assets of different currencies – equal the real interest differential plus real exchange rate growth. Among industrialized countries, UIP deviations are largely explained by unanticipated real exchange rate growth, but among developing countries, real interest differentials are “where the action is.” This observation is due to the greater variability of inflation in developing countries, but may also stem from higher and more variable risks and capital controls in these countries. Also, among developing countries with moderate inflation, offsetting comovements of real interest differentials and real exchange growth support the sticky-price hypothesis.

Author : Lucio Sarno,Giorgio Valente,H. L. Leon
Publisher : International Monetary Fund
Page : 48 pages
File Size : 49,8 Mb
Release : 2006-05
Category : Business & Economics
ISBN : UCSD:31822034384818

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Nonlinearity in Deviations from Uncovered Interest Parity: An Explanation of the Forward Bias Puzzle by Lucio Sarno,Giorgio Valente,H. L. Leon Pdf

We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.

Author : Mr.Eugenio M Cerutti,Mr.Maurice Obstfeld,Haonan Zhou
Publisher : International Monetary Fund
Page : 36 pages
File Size : 42,6 Mb
Release : 2019-01-16
Category : Business & Economics
ISBN : 9781484395219

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

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).

Author : Nelson Chung Mark,Yangru Wu,Tinbergen Institute
Publisher : Unknown
Page : 29 pages
File Size : 54,9 Mb
Release : 1996
Category : Electronic
ISBN : OCLC:535507459

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Risk, Policy Rules, and Noise by Nelson Chung Mark,Yangru Wu,Tinbergen Institute Pdf

Author : Robert e Cumby
Publisher : Unknown
Page : 24 pages
File Size : 47,9 Mb
Release : 1987
Category : Electronic
ISBN : OCLC:463912490

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Is it risk? : explaining deviations from uncovered interest parity by Robert e Cumby Pdf

Author : Owen F. Humpage,William P. Osterberg
Publisher : Unknown
Page : 40 pages
File Size : 42,6 Mb
Release : 1992
Category : Banks and banking, Central
ISBN : IND:30000106668472

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New Results on the Impact of Central-bank Intervention on Deviations from Uncovered Interest Parity by Owen F. Humpage,William P. Osterberg Pdf

Author : Mr.Peter Isard
Publisher : International Monetary Fund
Page : 14 pages
File Size : 53,6 Mb
Release : 1991-05
Category : Business & Economics
ISBN : UCSD:31822006644678

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Uncovered Interest Parity by Mr.Peter Isard Pdf

This note provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod and continuous time models of open economies, and although its validity is strongly challenged by the empirical evidence, its retention in macroeconomic models is supported on pragmatic grounds, at least for the time being, by the lack of much empirical support for existing models of the exchange risk premium.

Author : Gerard Caprio,Philippe Bacchetta
Publisher : Academic Press
Page : 547 pages
File Size : 40,9 Mb
Release : 2012-11-27
Category : Business & Economics
ISBN : 9780123978752

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Handbook of Safeguarding Global Financial Stability by Gerard Caprio,Philippe Bacchetta Pdf

Political and social forces exert pressure on our globalized economy in many forms, from formal and informal policies to financial theories and technical models. Our efforts to shape and direct these forces to preserve financial stability reveal much about the ways we perceive the financial economy. The Handbook of Safeguarding Global Financial Stability examines our political economy, particularly the ways in which these forces inhabit our institutions, strategies, and tactics. As economies expand and contract, these forces also determine the ways we supervise and regulate. This high-level examination of the global political economy includes articles about specific countries, crises, and international systems as well as broad articles about major concepts and trends.. Substantial articles by top scholars sets this volume apart from other information sources Diverse international perspectives result in new opportunities for analysis and research Rapidly developing subjects will interest readers well into the future

Author : Mr.Gee Hee Hong,Anne Oeking,Mr.Kenneth H Kang,Changyong Rhee
Publisher : International Monetary Fund
Page : 35 pages
File Size : 48,9 Mb
Release : 2019-08-02
Category : Business & Economics
ISBN : 9781513511184

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What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia by Mr.Gee Hee Hong,Anne Oeking,Mr.Kenneth H Kang,Changyong Rhee Pdf

Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs is the basis spread in the cross-currency swap market that emerges when there are deviations from covered interest parity (CIP). CIP deviations mean that investors need to pay a premium to borrow U.S. dollars or other currencies on a hedged basis via cross-currency swap markets. These deviations can be explained by regulatory changes since the global financial crisis, which have limited arbitrage opportunities and country-specific factors that contribute to a mismatch in the demand and supply of U.S. dollars. We find that an increase in the basis spread tightens financial conditions in net debtor countries, while easing financial conditions in net creditor countries. The main reason is that net debtor countries are, in general, unable to substitute smoothly to other domestic funding channels. Policies that promote reliable alternative funding sources, such as long-term corporate bond market or stable long-term investors, including a “hedging counterpart of last resort,” can help stabilize financial intermediation when U.S. dollar funding markets come under stress.

Author : Mr.Gee Hee Hong,Anne Oeking,Mr.Kenneth H Kang,Changyong Rhee
Publisher : International Monetary Fund
Page : 35 pages
File Size : 48,7 Mb
Release : 2019-08-02
Category : Business & Economics
ISBN : 9781513509006

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What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia by Mr.Gee Hee Hong,Anne Oeking,Mr.Kenneth H Kang,Changyong Rhee Pdf

Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs is the basis spread in the cross-currency swap market that emerges when there are deviations from covered interest parity (CIP). CIP deviations mean that investors need to pay a premium to borrow U.S. dollars or other currencies on a hedged basis via cross-currency swap markets. These deviations can be explained by regulatory changes since the global financial crisis, which have limited arbitrage opportunities and country-specific factors that contribute to a mismatch in the demand and supply of U.S. dollars. We find that an increase in the basis spread tightens financial conditions in net debtor countries, while easing financial conditions in net creditor countries. The main reason is that net debtor countries are, in general, unable to substitute smoothly to other domestic funding channels. Policies that promote reliable alternative funding sources, such as long-term corporate bond market or stable long-term investors, including a “hedging counterpart of last resort,” can help stabilize financial intermediation when U.S. dollar funding markets come under stress.

Author : Peter Isard
Publisher : International Monetary Fund
Page : 16 pages
File Size : 48,6 Mb
Release : 2006-04
Category : Business & Economics
ISBN : UCSD:31822034374827

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Uncovered Interest Parity by Peter Isard Pdf

This paper provides an overview of the uncovered interest parity assumption. It traces the history of the interest parity concept, summarizes evidence on the empirical validity of uncovered interest parity, and discusses different interpretations of the evidence and the implications for macroeconomic analysis. The uncovered interest parity assumption has been an important building block in multiperiod models of open economies, and although its validity is strongly challenged by the empirical evidence, at least at short time horizons, its retention in macroeconomic models is supported on pragmatic grounds by the lack of much empirical support for existing models of the exchange risk premium.

Author : Eugenio Cerutti,Maurice Obstfeld
Publisher : Unknown
Page : 128 pages
File Size : 42,6 Mb
Release : 2019
Category : Electronic
ISBN : OCLC:1112388208

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Covered Interest Parity Deviations by Eugenio Cerutti,Maurice Obstfeld Pdf

Author : J. Hölscher
Publisher : Palgrave Macmillan
Page : 0 pages
File Size : 42,5 Mb
Release : 2014-10-17
Category : Business & Economics
ISBN : 1137426403

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Poland and the Eurozone by J. Hölscher Pdf

Poland is one of Europe's economic out-performers. The country's history and geography encourage it to be in favour of deeper European integration. This book aims to contribute to discussions on the future shape of EMU and the next steps ahead.

Author : Torsten Abendroth
Publisher : GRIN Verlag
Page : 66 pages
File Size : 53,5 Mb
Release : 2017-01-18
Category : Business & Economics
ISBN : 9783668382114

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Uncovered Interest Parity and Carry Trades by Torsten Abendroth Pdf

Master's Thesis from the year 2016 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,0, University of Frankfurt (Main) (Goethe Business School), language: English, abstract: The aim of this thesis is to test UIP by implementing an OLS regression analysis for five currency pairs which, according to CFTC data, global turnover data and carry-to-risk ratios, were among the most popular in the investor community. To increase the significance of this thesis for practitioners, the work will use one-month forward contracts which are used frequently by investors and include bid and ask rates in order to account for transaction costs. In addition, all currency pairs include the US Dollar for reasons of better liquidity, and therefore tighter bid-ask spreads. Moreover, this thesis will present recent findings in literature which try to explain deviations from UIP. Approaches can be separated by the focus on a risk premium, by irrational market behavior or by learning problems and market inefficiency. While most focus is laid on an explanation by a risk premium, it will be shown that it is crucial to combine the different scientific disciplines in order to solve the forward premium puzzle. In addition to this, the thesis will provide an outlook on the future attractiveness of carry trade strategies.

Author : Peter König,Joachim Möller
Publisher : Unknown
Page : 21 pages
File Size : 51,9 Mb
Release : 1988
Category : Electronic
ISBN : OCLC:46087082

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Deviations from Uncovered Interest Parity by Peter König,Joachim Möller Pdf