Covered Interest Arbitrage: Then versus Now
AbstractWe introduce a new weekly database of spot and forward US-UK exchange rates and interest rates to examine the integration of forward exchange markets during the classical Gold Standard period (1880-1914). Using threshold autoregressions (TARs), we estimate the transaction cost band of covered interest differentials (CIDs) and compare our results with studies of more recent periods. We find that CIDs for the US-UK rate were generally largest during the classical Gold Standard. We argue that slower information and communications technology during the Gold Standard period led to fewer short-term financial flows, higher transaction costs and larger CIDs. Copyright (c) The London School of Economics and Political Science 2006.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 73 (2006)
Issue (Month): 290 (05)
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- Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2006.
"Arbitrage in the Foreign Exchange Market: Turning on the Microscope,"
SIFR Research Report Series
42, Institute for Financial Research.
- Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2008. "Arbitrage in the foreign exchange market: Turning on the microscope," Journal of International Economics, Elsevier, vol. 76(2), pages 237-253, December.
- Akram, Qaisar Farooq & Rime, Dagfinn & Sarno, Lucio, 2008. "Arbitrage in the Foreign Exchange Market: Turning on the Microscope," CEPR Discussion Papers 6878, C.E.P.R. Discussion Papers.
- Q. Farooq Akram, & Dagfinn Rime & Lucio Sarno, 2005. "Arbitrage in the foreign exchange market: Turning on the microscope," Working Paper 2005/12, Norges Bank.
- Perlin, Marcelo & Dufour, Alfonso & Brooks, Chris, 2010. "The Drivers of Cross Market Arbitrage Opportunities: Theory and Evidence for the European Bond Market," MPRA Paper 23381, University Library of Munich, Germany.
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