A Rank Approach for Studying Cross Currency Bases and the Covered Interest Rate Parity

Serie

• Borradores de economía

Resumen

• We use the recently developed panel rank-cointegration test proposed by Pedroni et al. [2015] to check for the stability conditions of the cross-country money market interest rate bases. Using weekly information on short-term interest rates and spot and forward exchange rates for a set of 20 European economies during 2005-2017, we show that in most cases these bases are non-stationary, implying the failure of the Covered Interest Rate Parity condition. Concretely, a mean-reverting behavior is encountered in only two cases. The first includes Greece, Italy and Portugal, while the second Belgium, France and Germany.

autores

• Gómez-González, José Eduardo
• Gómez-Malagon, Santiago
• Melo-Velandia, Luis Fernando
• Ordoñez-Callamand, Daniel

fecha de publicación

• 2017-05

Área temática

• C12 - Contraste de hipótesis: generalidades
• C33 - Modelos de ecuaciones múltiples/simultáneas; Variables múltiples: Modelos con datos de panel; Modelos espacio-temporales
• E43 - Tipos de interés: determinación, estructura temporal y efectos

Enfoque geográfico

• Belgium  Country
• Colombia  Country
• France  Country
• Germany  Country
• Greece  Country
• Italy  Country
• Portugal  Country

Líneas de investigación

• Cointegration
• Covered Interest Rate Parity
• Nonparametric Rank Tests
• Time Series

Identificador de objeto digital (DOI)

• https://doi.org/10.32468/be.994

Issue

• 994