EconStor >
Federal Reserve Bank of New York >
Staff Reports, Federal Reserve Bank of New York >

Please use this identifier to cite or link to this item:

Full metadata record

DC FieldValueLanguage
dc.contributor.authorCoffey, Niallen_US
dc.contributor.authorHrung, Warren B.en_US
dc.contributor.authorSarkar, Asanien_US
dc.description.abstractWe provide robust evidence of deviations from the covered interest rate parity (CIP) relation since the onset of the financial crisis in August 2007. The CIP deviations exist with respect to several different dollar-denominated interest rates and exchange rate pairings of the dollar vis-à-vis other currencies. The results show that our proxies for margin conditions and for the cost of capital are significant determinants of the CIP deviations. Following the bankruptcy of Lehman Brothers, uncertainty about counterparty risk became a significant determinant of CIP deviations. The supply of dollars by the Federal Reserve to foreign central banks via reciprocal currency arrangements (swap lines) reduced CIP deviations. In particular, the announcement on October 13, 2008, that the swap lines would become unlimited reduced CIP deviations substantially. These results indicate a breakdown of arbitrage transactions in the international capital markets during the crisis that stems partly from lack of funding and partly from heightened counterparty credit risk. Central bank interventions helped reduce the funding liquidity risk of global institutions.en_US
dc.publisherFederal Reserve Bank of New York New York, NYen_US
dc.relation.ispartofseriesStaff Report, Federal Reserve Bank of New York 393en_US
dc.subject.keywordCovered interest rate parityen_US
dc.subject.keywordfunding constraintsen_US
dc.subject.keywordcounterparty credit risken_US
dc.subject.keywordcentral bank currency swap linesen_US
dc.subject.keywordfinancial crisisen_US
dc.subject.keywordforeign exchangeen_US
dc.titleCapital constraints, counterparty risk, and deviations from covered interest rate parityen_US
dc.typeWorking Paperen_US
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

Files in This Item:
File Description SizeFormat
622773860.pdf396.47 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.