Download or read book Covered Interest Parity Deviations Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Download or read book Three Parity Conditions and Deviations from Uncovered Interest Parity written by Anders Vik and published by . This book was released on 1997 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Tests of Three Parity Conditions written by Richard C. Marston and published by . This book was released on 1994 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two explanations are given for why nominal or real returns differ across currencies: foreign exchange risk premia and systematic (rational) forecast errors. This study reexamines three parity conditions in international finance, uncovered interest parity, purchasing power parity, and real interest parity, to determine the relative importance of these two factors. The study develops joint tests of the three parity conditions by relating nominal and real interest differentials and inflation differentials to the same set of variables currently known to investors. The study tests parameter restrictions based on knowing that risk premiums only affect nominal and real interest differentials, but not inflation differentials, while systematic errors in forecasting exchange rates only affect nominal interest differentials and inflation differentials, but not real interest differentials.
Download or read book Deviations from Uncovered Interest Parity written by Evan Tanner and published by . This book was released on 2006 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 quot;where the action is.quot; 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.
Download or read book Uncovered Interest Parity written by Mr.Peter Isard and published by International Monetary Fund. This book was released on 1991-05 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book What Do Deviations from Covered Interest Parity and Higher FX Hedging Costs Mean for Asia written by Mr.Gee Hee Hong and published by International Monetary Fund. This book was released on 2019-08-02 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book International Parity Conditions written by Razzaque H. Bhatti and published by Springer. This book was released on 2016-07-27 with total page 389 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents an extensive survey of the theory and empirics of international parity conditions which are critical to our understanding of the linkages between world markets and the movement of interest and exchange rates across countries. The book falls into three parts dealing with the theory, methods of econometric testing and existing empirical evidence. Although it is intended to provide a consensus view on the subject, the authors also make some controversial propositions, particularly on the purchasing power parity conditions.
Download or read book A Research Examination of Covered Uncovered Interest Rate Parity and the Purchase Power Parity PPP Hypothesis Applications in MATLAB RATS and EVIEWS written by Eleftherios Giovanis and published by GRIN Verlag. This book was released on 2010-02 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2008 in the subject Business economics - Investment and Finance, grade: 95.00%, language: English, abstract: This project examines in the first part the covered and uncovered interest parity between US dollar and Swiss Franc. We present simple summary statistics, unit root tests, deviations from covered interest parity, regression analysis, threshold autoregression and exponential transition autoregression. Then we present the uncovered interest parity and, as in the case of covered interest parity, we apply some tests to examine if it's valid. We apply Johansen cointegration tests between spot and forward rates, but also between forward premia and interest rates differentials and we test if there is a cointegration equation and we estimate the vector error correction model. After this procedure we present the impulse responses. Next we test if there is a threshold cointegration relation between the above variables. Finally in the last section we apply a dynamic OLS (DOLS) estimation with Newey-West HAC standard errors. In the second part the purchasing power parity (PPP) hypothesis is examined with a similar methodology followed, where additionally we present a long span study, unit root tests allowing for structural breaks in data, panel unit root tests as also Markov switching regime autoregressive model is examined in the category of the non linear models
Download or read book Uncovered Interest Parity written by Peter Isard and published by International Monetary Fund. This book was released on 2006-04 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Deviations From Uncovered Interest Parity written by Mr.Evan Tanner and published by International Monetary Fund. This book was released on 1998-08-01 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets written by R. Hodrick and published by Routledge. This book was released on 2014-05-01 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: First Published in 2001. Routledge is an imprint of Taylor & Francis, an informa company.
Download or read book Is it risk explaining deviations from uncovered interest parity written by Robert E. Cumby and published by . This book was released on 1987 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Exchange Rate Theory and Practice written by John F. Bilson and published by University of Chicago Press. This book was released on 2007-12-01 with total page 542 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume grew out of a National Bureau of Economic Research conference on exchange rates held in Bellagio, Italy, in 1982. In it, the world's most respected international monetary economists discuss three significant new views on the economics of exchange rates - Rudiger Dornbusch's overshooting model, Jacob Frenkel's and Michael Mussa's asset market variants, and Pentti Kouri's current account/portfolio approach. Their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today, including those of the European Monetary System.
Download or read book Uncovered interest parity condition between the United States and Europe under different exchange rate regimes written by Jürgen Wolters and published by . This book was released on 1988 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Limits to Speculation and Nonlinearity in Deviations from Uncovered Interest Parity written by Lucio Sarno and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine empirically the hypothesis that limits to speculation in the foreign exchange market may induce nonlinearities in the spot-forward relationship and in the process driving the deviations from the uncovered interest rate parity (UIP) condition. Our empirical results provide strong evidence of nonlinearities which are consistent with a model of deviations from UIP with two extreme regimes: one regime with persistent but tiny deviations from UIP, and another regime where UIP holds. In a battery of Monte Carlo experiments, we show that if the true data generating process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the well known forward bias puzzle and the predictability of foreign exchange excess returns documented in the literature. In turn, these findings have implications for the economic significance of the statistical rejection of foreign exchange market efficiency.
Download or read book Are Real Interest Rates Equal Across Countries written by Frederic S. Mishkin and published by . This book was released on 1982 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The proposition that real rates are equal across countries is worth studying because it is central to our understanding of open economy macroeconomics and because it is also an important issue to policy makers. If it is true, then domestic monetary authorities have no control over their real rate relative to the world rate, limiting the impact of their stabilization policies. In addition, as Feldstein has pointed out, unless real rates can differ across countries, policies directed at increasing domestic savings cannot increase the rate of capital formation and hence productivity. The equality of real rates is also worth investigating, because it is intimately linked to and provides information on the basic parity conditions featured so prominently in open economy macro models.This paper conducts empirical tests of the equality of real rates and other parity conditions across countries using euro rate data over the1967-II to 1979-II sample period. The empirical evidence strongly rejects the hypothesis of the equality of real euro rates across countries. The joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP, are also strongly rejected. Yet independent tests of uncovered interest parity, the unbiasedness of forward rate forecasts and ex ante relative PPP yield few rejections and high marginal significance levels. The evidence suggests that it is worth studying open economy models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market or 3) deviations from ex ante relative purchasing power parity.The evidence also leaves open the possibility for policy makers to exertsome control over their domestic real rate relative to those in the rest of the world. However, the evidence does not rule out that there is a tendency for real rates across countries to equalize over time, and this is an important topic for further research.
Download or read book Foreign Currency Bank Funding and Global Factors written by Signe Krogstrup and published by International Monetary Fund. This book was released on 2018-05-09 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.
