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International Capital Mobility in Emerging Markets: New Evidence from Daily Data

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  • Kumhof, Michael

Abstract

This paper analyzes daily covered interbank interest differentials for three emerging markets before and after the 1997/98 financial crises, and compares them with those of four developed economies. It examines descriptive statistics of covered differentials and the long-run equilibrium (cointegrating) relationship between their interest rate and forward discount components. Mean differentials and their volatility were moderate before crises, but increased dramatically during crises. The main reasons are temporarily effective capital controls, large bank default risk premia, and capital market imperfections. The evidence for a cointegrating vector consistent with covered interest parity is strong, implying that, despite large short-term deviations, covered interest parity does hold as an equilibrium relationship. Copyright 2001 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 9 (2001)
Issue (Month): 4 (November)
Pages: 626-40

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Handle: RePEc:bla:reviec:v:9:y:2001:i:4:p:626-40

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Cited by:
  1. Cheung, Yin-Wong & Chinn, Menzie David & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and Financial Integration," Santa Cruz Department of Economics, Working Paper Series qt13d9m8jv, Department of Economics, UC Santa Cruz.
  2. Tang, Kin-Boon, 2011. "The precise form of uncovered interest parity: A heterogeneous panel application in ASEAN-5 countries," Economic Modelling, Elsevier, vol. 28(1-2), pages 568-573, January.
  3. Orlov, Alexei G., 2006. "Capital controls and stock market volatility in frequency domain," Economics Letters, Elsevier, vol. 91(2), pages 222-228, May.
  4. Doukas, John A. & Zhang, Hao, 2013. "The performance of NDF carry trades," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 172-190.
  5. Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk : facts and puzzles from currency boards," Policy Research Working Paper Series 2815, The World Bank.
  6. Juan Sole, 2004. "Interest-rate Defenses of Currency Pegs," 2004 Meeting Papers 306, Society for Economic Dynamics.
  7. Kevin X.D. Huang & Thaneepanichskul Suchada, 2003. "Sources of Exchange Rate Fluctuations: The Cases of Mexico and Thailand in the Aftermaths of their Recent Currency Crises," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 375-400, November.

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