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Covered Interest Parity: The Long Run Evidence

Author

Listed:
  • Accominotti, Olivier
  • Chambers, David
  • Cen, Jason
  • Degorce, Victor

Abstract

Employing a novel daily dataset for 19 advanced-economy currencies over the years 1963–2025, we find that, contrary to the prevailing view, deviations from the covered interest parity (CIP) condition were both large and frequent over the long-run. The 2000–06 period immediately preceding the Global Financial Crisis when CIP held unusually closely is therefore the exception rather than the period that followed. The long-run pattern in CIP deviations maps closely to measures of intermediary frictions and FX swap market imbalances. Our findings indicate that intermediary frictions have been a persistent feature of international financial markets over the past six decades.

Suggested Citation

  • Accominotti, Olivier & Chambers, David & Cen, Jason & Degorce, Victor, 2026. "Covered Interest Parity: The Long Run Evidence," CEPR Discussion Papers 21820, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21820
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    File URL: https://cepr.org/publications/DP21820
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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