2022
Chapter
Handbook of International Economics, Volume 6

CIP Deviations, the Dollar, and Frictions in International Capital Markets

By: Wenxin Du and Jesse Schreger

Format:Print
| Pages:51

Abstract

The covered interest rate parity (CIP) condition is a fundamental arbitrage relationship in international finance. In this chapter, we review its breakdown during the Global Financial Crisis and its continued failure in the subsequent decade. We review how to measure CIP deviations, discuss the drivers of CIP deviations, and the implications of CIP deviations for global financial markets

Keywords

Interest Rates; International Finance; Financial Crisis; Currency

Citation

Du, Wenxin, and Jesse Schreger. "CIP Deviations, the Dollar, and Frictions in International Capital Markets." Chap. 4 in Handbook of International Economics, Volume 6, edited by Gita Gopinath, Elhanan Helpman, and Kenneth Rogoff, 147–197. Handbooks in Economics. Elsevier BV, 2022.