Covered Interest Parity and the Global Financial Crisis in Four Central and Eastern European Countries

摘要

This paper examines the empirical validity of the covered interest parity (CIP) hypothesis in the Czech Republic, Hungary, Poland, and Romania. Before the global financial crisis, CIP was mostly satisfied for the first three countries but not for Romania. During and after the crisis, deviations from CIP have been substantial in all cases but with large differences across the countries. Estimations tie the observed pattern to developments in both global and country-specific risks. In the case of the Czech Republic, increased global risks led to a lower risk premium, indicating that Czech assets functioned as a "safe haven." In Hungary and Poland, increased global risks led to higher risk premiums, suggesting a flight to quality out of Hungarian and Polish assets. Finally, for Romania the deviations from CIP were unrelated to developments in global or local financial risks, reflecting a repressed financial system.