Deviations from Covered Interest Rate Parity: Evaluating Drivers for Changes
In this paper I evaluate the deviation from covered interest rate parity after the great financial crisis. As a new phenomenon, this deviation has been approached both theoretically (violating the no arbitrage condition) and empirically. Through an extensive literature review, I have mapped the possible drivers of the deviation and their proxies. I have applied my analysis in a set of countries that haven’t been explored in this literature so far, even though represent a significative part of the foreign exchange market. Regarding the results, I have obtained a significant weight in the financial drivers and a small impact over the classical liquidity proxies used in the literature. This result claims for a deeper analysis and open the possibility to evaluate this phenomenon under a new perspective.
Copyright (c) 2020 Fernando Chertman
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