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    Preferred habitat, policy, and the CIP puzzle

    Wohlfarth, Paul (2019) Preferred habitat, policy, and the CIP puzzle. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    A crucial no-arbitrage condition on foreign exchange markets, covered interest parity (CIP), held almost exaclty before the Global Financial Crisis (GFC) and failed since then. CIP deviations have been particularly puzzling in relatively calm markets after 2014. This paper explains deviations from CIP, measured by the cross-currency basis from swaps (CCBS), in terms of significant policy and volatility effects in a preferred habitat model of the Eurodollar swap market. Estimation is done using EGARCH in mean for a set of CCBS maturities. The term structure of the CCBS is further analysied in a Vector Error Correction Model (VECM).

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM Working Paper Series 1908. ISSN 1745-8587
    Keyword(s) / Subject(s): Macro Finance, International Monetary Economics, Preferred Habitat, Foreign Exchange Markets, International Finance
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 10 Oct 2019 15:27
    Last Modified: 11 Oct 2019 21:08
    URI: http://eprints.bbk.ac.uk/id/eprint/29402

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