IDEAS home Printed from https://ideas.repec.org/a/mes/postke/v40y2017i4p470-486.html
   My bibliography  Save this article

Covered interest parity: The untestable hypothesis

Author

Listed:
  • Imad Moosa

Abstract

Although post Keynesian economists advocate the realistic bankers’ view of the forward exchange rate, neoclassical economists formulate (CIP) as a testable hypothesis. In reality, CIP represents a formula used by bankers to calculate the forward rates they quote to their customers. This article provides arguments for the post Keynesian view of the forward exchange rate and suggests that CIP is not a theory, that it is a microeconomic relation, and that it is a hedging rather than an arbitrage condition. An empirical illustration shows that deviations from CIP are observed whenever published data are used, but these deviations disappear when transaction data are used instead. It is concluded that CIP is an untestable hypothesis.

Suggested Citation

  • Imad Moosa, 2017. "Covered interest parity: The untestable hypothesis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 470-486, October.
    • Handle: RePEc:mes:postke:v:40:y:2017:i:4:p:470-486
    DOI: 10.1080/01603477.2017.1352451
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/01603477.2017.1352451
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/01603477.2017.1352451?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. John Smithin, 1994. "Controversies In Monetary Economics," Books, Edward Elgar Publishing, number 412.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kam, Eric & Smithin, John, 2008. "‘Unequal Partners’: The Role of International Financial Flows and the Exchange Rate Regime," The Journal of Economic Asymmetries, Elsevier, vol. 5(1), pages 125-137.
    2. John Smithin, 2016. "Endogenous Money, Fiscal Policy, Interest Rates and the Exchange Rate Regime: A Comment on Palley, Tymoigne and Wray," Review of Political Economy, Taylor & Francis Journals, vol. 28(1), pages 64-78, January.
    3. Angel Asensio, 2009. "Between the cup and the lip," CEPN Working Papers halshs-00496911, HAL.
    4. Eckhard Hein, 2019. "Karl Marx: an early post-Keynesian? A comparison of Marx's economics with the contributions by Sraffa, Keynes, Kalecki and Minsky," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(2), pages 238-259, September.
    5. Giuseppe Mastromatteo & Luigi Ventura, 2007. "The origin of money: A survey of the contemporary literature," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(2), pages 195-224, June.
    6. Claude Gnos & Louis-Philippe Rochon, 2007. "The New Consensus and Post-Keynesian Interest Rate Policy," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 369-386.
    7. Enrico Sergio Levrero, 2021. "Estimates of the Natural Rate of Interest and the Stance of Monetary Policies: A Critical Assessment," International Journal of Political Economy, Taylor & Francis Journals, vol. 50(1), pages 5-27, February.
    8. Louis-Philippe Rochon, 2001. "Cambridge's Contribution to Endogenous Money: Robinson and Kahn on credit and money," Review of Political Economy, Taylor & Francis Journals, vol. 13(3), pages 287-307.
    9. Hein, Eckhard, 2001. "Institutions and macroeconomic performance: Central bank independence, labour market institutions and the perspectives for inflation and employment in the European Monetary Union," WSI Working Papers 95, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    10. Egmont Kakarot-Handtke, 2013. "The Emergence of Profit and Interest in the Monetary Circuit," World Economic Review, World Economics Association, vol. 2013(2), pages 106-106, February.
    11. Matias Vernengo & Louis-Philippe Rochon, 2001. "Kaldor and Robinson on money and growth," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 8(1), pages 75-103.
    12. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    13. Thereza Balliester Reis, 2018. "Why Are Policy Real Interest Rates So High in Brazil? An Analysis of the Determinants of the Central Bank of Brazil’s Real Interest Rate," International Journal of Political Economy, Taylor & Francis Journals, vol. 47(2), pages 178-198, April.
    14. Hein, Eckhard, 2002. "Monetary policy and wage bargaining in the EMU: Restrictive ECB policies, high unemployment, nominal wage restraint and rising inflation," WSI Working Papers 103, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    15. Eckhard Hein, 2005. "Finanzstruktur und Wirtschaftswachstum - theoretische und empirische Aspekte," IMK Studies 01-2005, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    16. Eckhard Hein, 2002. "Monetary policy and wage bargaining in the EMU: restrictive ECB policies, high unemployment, nominal wage restraint and inflation above the target," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 299-337.
    17. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    18. Andrie Schoombee, 1998. "The financial systems approach to development finance: Origin, evolution and prospects," Development Southern Africa, Taylor & Francis Journals, vol. 15(3), pages 379-398.
    19. Eckhard Hein, 2006. "Money, interest and capital accumulationin Karl Marx's economics: a monetary interpretation and some similaritiesto post-Keynesian approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(1), pages 113-140.
    20. John T. Harvey, 2004. "Deviations from uncovered interest rate parity: a Post Keynesian explanation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(1), pages 19-35.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:postke:v:40:y:2017:i:4:p:470-486. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MPKE20 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.