CIP DEVIATIONS, THE DOLLAR, AND FRICTIONS IN INTERNATIONAL CAPITAL MARKETS

摘要

Covered interest rate parity has long been a foundational relationship in international finance and macroeconomics. Its breakdown represents a significant change in global financial markets. The cross-currency basis has emerged from an esoteric corner of the FX derivative market to become an important barometer of the health of global capital markets. The breakdown of CIP puts financial frictions and intermediary constraints at the heart of international finance and macroeconomics.