Interpreting deviations from covered interest parity during the financial market turmoil of 2007 – 08

@inproceedings{Baba2008InterpretingDF,
  title={Interpreting deviations from covered interest parity during the financial market turmoil of 2007 – 08},
  author={Naohiko Baba and Frank Packer},
  year={2008}
}
  • Naohiko Baba, Frank Packer
  • Published 2008
This paper investigates the spillover effects of money market turbulence in 2007–08 on the short-term covered interest parity (CIP) condition between the US dollar and the euro through the foreign exchange (FX) swap market. Sharp and persistent deviations from the CIP condition observed during the turmoil are found to be significantly associated with differences in the counterparty risk between European and US financial institutions. Furthermore, evidence is found that dollar term funding… CONTINUE READING