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- Publisher Website: 10.1057/s41308-023-00222-x
- Scopus: eid_2-s2.0-85179742031
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Article: Uncovering CIP Deviations in Emerging Markets: Distinctions, Determinants, and Disconnect
Title | Uncovering CIP Deviations in Emerging Markets: Distinctions, Determinants, and Disconnect |
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Authors | |
Keywords | F31 G15 |
Issue Date | 2024 |
Citation | IMF Economic Review, 2024, v. 72, n. 1, p. 196-252 How to Cite? |
Abstract | We provide a systematic empirical analysis of short-term covered interest parity (CIP) deviations for a large set of emerging market (EM) currencies. EM CIP deviations tend to be wider and more volatile compared to most G10 currencies, and may move in an opposite direction compared to G10 currencies during global risk-off episodes. Motivated by theories of financial determinants of exchange rate, we show that while offshore EM CIP deviations are sensitive to changes in FX dealers’ risk-bearing capacities and global risk aversion, onshore CIP deviations are largely unresponsive in segmented FX markets. Meanwhile, the sensitivity of offshore CIP deviations to global factors for currencies with segmented FX markets is stronger compared to their counterparts with integrated FX markets. After accounting for global factors, we find weak evidence of country default risk and FX intervention affecting EM CIP deviations. |
Persistent Identifier | http://hdl.handle.net/10722/345369 |
ISSN | 2023 Impact Factor: 3.3 2023 SCImago Journal Rankings: 3.286 |
DC Field | Value | Language |
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dc.contributor.author | Cerutti, Eugenio | - |
dc.contributor.author | Zhou, Haonan | - |
dc.date.accessioned | 2024-08-15T09:26:55Z | - |
dc.date.available | 2024-08-15T09:26:55Z | - |
dc.date.issued | 2024 | - |
dc.identifier.citation | IMF Economic Review, 2024, v. 72, n. 1, p. 196-252 | - |
dc.identifier.issn | 2041-4161 | - |
dc.identifier.uri | http://hdl.handle.net/10722/345369 | - |
dc.description.abstract | We provide a systematic empirical analysis of short-term covered interest parity (CIP) deviations for a large set of emerging market (EM) currencies. EM CIP deviations tend to be wider and more volatile compared to most G10 currencies, and may move in an opposite direction compared to G10 currencies during global risk-off episodes. Motivated by theories of financial determinants of exchange rate, we show that while offshore EM CIP deviations are sensitive to changes in FX dealers’ risk-bearing capacities and global risk aversion, onshore CIP deviations are largely unresponsive in segmented FX markets. Meanwhile, the sensitivity of offshore CIP deviations to global factors for currencies with segmented FX markets is stronger compared to their counterparts with integrated FX markets. After accounting for global factors, we find weak evidence of country default risk and FX intervention affecting EM CIP deviations. | - |
dc.language | eng | - |
dc.relation.ispartof | IMF Economic Review | - |
dc.subject | F31 | - |
dc.subject | G15 | - |
dc.title | Uncovering CIP Deviations in Emerging Markets: Distinctions, Determinants, and Disconnect | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1057/s41308-023-00222-x | - |
dc.identifier.scopus | eid_2-s2.0-85179742031 | - |
dc.identifier.volume | 72 | - |
dc.identifier.issue | 1 | - |
dc.identifier.spage | 196 | - |
dc.identifier.epage | 252 | - |
dc.identifier.eissn | 2041-417X | - |