CIP Deviations, the Dollar, and Frictions in International Capital Markets

141 Pages Posted: 11 May 2021

See all articles by Wenxin Du

Wenxin Du

University of Chicago Booth School of Business

Jesse Schreger

Columbia University - Columbia Business School, Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: May 10, 2021

Abstract

The covered interest rate parity (CIP) condition is a fundamental arbitrage relationship in international finance. In this chapter, we review its breakdown during the Global Financial Crisis and its continued failure in the subsequent decade. We review how to measure CIP deviations, discuss the drivers of CIP deviations, and the implications of CIP deviations for global financial markets.

JEL Classification: E0,F0,G0

Suggested Citation

Du, Wenxin and Schreger, Jesse, CIP Deviations, the Dollar, and Frictions in International Capital Markets (May 10, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-57, Available at SSRN: https://ssrn.com/abstract=3843204 or http://dx.doi.org/10.2139/ssrn.3843204

Wenxin Du (Contact Author)

University of Chicago Booth School of Business ( email )

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Jesse Schreger

Columbia University - Columbia Business School, Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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