Advanced Search
MyIDEAS: Login

Nonlinear dynamics and covered interest rate parity

Contents:

Author Info

  • Mark E. Wohar

    ()
    (Distinguished Lucas Professor, Department of Economics,University of Nebraska at Omaha, CBA-512K, Omaha, NE 68182, USA)

  • Nathan S. Balke

    ()
    (Department of Economics, Southern Methodist University, Dallas, TX 75275, USA and Research Department, Federal Reserve Bank of Dallas)

Abstract

This paper examines the dynamics of deviations from covered interest parity using daily data on the UK/US spot, forward exchange rates and interest rates over the period January 1974 to September 1993. Like other studies we find a substantial number of instances during the sample in which the covered interest parity condition exceeds the transaction costs band, implying arbitrage profit opportunities. While most of these implied profit opportunities are relatively small, there is also evidence of some very large deviations from covered interest parity in the sample. In order to examine the persistence of these deviations, we estimated a threshold autoregression in which the dynamics behavior of deviations from covered interest parity is different outside the transaction costs band than inside them. We find that while the impulse response functions when inside the transaction costs band are nearly symmetric, those for the outside the bands are asymmetric-suggesting less persistence outside of the transaction costs band than inside the band.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://link.springer.de/link/service/journals/00181/papers/8023004/80230535.pdf
Download Restriction: Access to the full text of the articles in this series is restricted

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 23 (1998)
Issue (Month): 4 ()
Pages: 535-559

as in new window
Handle: RePEc:spr:empeco:v:23:y:1998:i:4:p:535-559

Note: received: April 1996/final version received: June 1997
Contact details of provider:
Postal: Stumpergasse 56, A-1060 Vienna
Phone: ++43 - (0)1 - 599 91 - 0
Fax: ++43 - (0)1 - 599 91 - 555
Web page: http://link.springer.de/link/service/journals/00181/index.htm
More information through EDIRC

Order Information:
Web: http://link.springer.de/orders.htm

Related research

Keywords: Covered interest parity · impulse response · threshold autoregression;

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:23:y:1998:i:4:p:535-559. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.