Covered Interest Rate Parity Deviations, COVID-19 Pandemic Infection Cases, and Vaccination

37 Pages Posted: 15 Sep 2022

See all articles by Yu-Lun Chen

Yu-Lun Chen

Chung Yuan Christian University

Wan-Shin Mo

National ChiaYi University Department of Applied Economics; Chung Yuan Christian University

J. Jimmy Yang

Oregon State University

Abstract

This study explores the impact of the COVID-19 pandemic on the deviations from the covered interest rate parity (CIP) for G10 currencies. We find that more COVID-19 infection cases or higher stringency index are associated with larger CIP deviations. However, this relation disappears after the availability of COVID-19 vaccines, indicating that vaccines not only battle against coronavirus but also help promote efficiency in the FX market. Furthermore, we find that the rise of U.S. dollar value during the COVID-19 pandemic contributes to the persistent deviation from the CIP.

Keywords: Covered interest rate parity (CIP), COVID-19 pandemic, Stringency index, Cross-currency basis.

Suggested Citation

Chen, Yu-Lun and Mo, Wan-Shin and Yang, J. Jimmy, Covered Interest Rate Parity Deviations, COVID-19 Pandemic Infection Cases, and Vaccination. Available at SSRN: https://ssrn.com/abstract=4201476

Yu-Lun Chen (Contact Author)

Chung Yuan Christian University ( email )

22 Pu-Jen, Pu-chung Li
Chung-Li, 32023
Taiwan

Wan-Shin Mo

National ChiaYi University Department of Applied Economics ( email )

No. 580, Sinmin Road
Chiayi, 600
Taiwan
886-5-273-2853 (Fax)

Chung Yuan Christian University ( email )

580, Xinmin Rd.
Chia-yi, 600
Taiwan
886-5-273-2855 (Phone)

J. Jimmy Yang

Oregon State University ( email )

426 Austin Hall
Corvallis, OR 97331
United States
5417376005 (Phone)

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