Covered Interest Parity: Evidence from the U.S.- Canadian Money Markets
The examination of stochastic properties of the U.S. and the covered Canadian 3-month Treasury bill rates reveals that the series are cointegrated and, therefore, possess a long-run equilibrium relation defined as the covered interest parity condition. The U. S. rate is found to be less sensitive to shocks, and at the same time, adjusts less quickly to departures from the covered interest parity. The sluggish response of the U.S. T-bill market may suggest that investors have a preferred market habitat in investing in the U.S. rather than the covered Canadian T-bill market.
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Volume (Year): 28 (1993)
Issue (Month): 1 (January)
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