This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Interpreting deviations from covered interest parity during the financial market turmoil of 2007-08

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Naohiko Baba
Frank Packer
Abstract

This paper investigates the spillover effects of money market turbulence in 2007-08 on the short-term covered interest parity (CIP) condition between the US dollar and the euro through the foreign exchange (FX) swap market. Sharp and persistent deviations from the CIP condition observed during the turmoil are found to be significantly associated with differences in the counterparty risk between European and US financial institutions. Furthermore, evidence is found that dollar term funding auctions by the ECB, supported by dollar swap lines with the Federal Reserve, have stabilized the FX swap market by lowering the volatility of deviations from CIP.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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://www.bis.org/publ/work267.pdf
File Format: application/pdf
File Function: Full PDF document
Download Restriction: no
File URL: http://www.bis.org/publ/work267.htm
File Format: text/html
File Function:
Download Restriction: no

Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number 267.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 22 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:bis:biswps:267

Contact details of provider:
Postal: Centralbahnplatz 2, CH - 4002 Basel
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Email:
Web page: http://www.bis.org/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Timo Laurmaa).

Related research
Keywords: FX swap; covered interest parity; financial market turmoil; counterparty risk; dollar swap lines; dollar term auction facility;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John B. Taylor & John C. Williams, 2009. "A Black Swan in the Money Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 58-83, January. [Downloadable!]
    Other versions:
  2. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 509-541, 03. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Duffie, Darrell & Huang, Ming, 1996. " Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-49, July. [Downloadable!] (restricted)
  5. Peek, Joe & Rosengren, Eric S., 2001. "Determinants of the Japan premium: actions speak louder than words," Journal of International Economics, Elsevier, vol. 53(2), pages 283-305, April. [Downloadable!] (restricted)
    Other versions:
  6. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  7. Patrick McGuire & Goetz von Peter, 2008. "International banking activity amidst the turmoil," BIS Quarterly Review, Bank for International Settlements, June. [Downloadable!]
  8. Jacob Gyntelberg & Philip Wooldridge, 2008. "Interbank rate fixings during the recent turmoil," BIS Quarterly Review, Bank for International Settlements, March. [Downloadable!]
  9. Michael Melvin & Vincentiu Covrig & Buen Low, . "A Yen is not a Yen: TIBOR/LIBOR and the determinants of the 'Japan Premium'," Working Papers 2133360, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
    Other versions:
  10. Taylor, Mark P, 1989. "Covered Interest Arbitrage and Market Turbulence," Economic Journal, Royal Economic Society, vol. 99(396), pages 376-91, June. [Downloadable!] (restricted)
  11. Claudio Borio & William Nelson, 2008. "Monetary operations and the financial turmoil," BIS Quarterly Review, Bank for International Settlements, March. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March. [Downloadable!]
  2. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March. [Downloadable!]
Statistics
Access and download statistics

Did you know? There are over 21000 authors registered on RePEc Author Service.

This page was last updated on 2009-11-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.