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https://doi.org/10.1080/1331677X.2019.1642780

Does the covered interest rate parity fit for China?

Chi-Wei Su ; School of Economics, Qingdao University
Kai-Hua Wang ; Department of Finance, Qingdao University
Ran Tao ; Technological Center, Shandong Entry-Exit Inspection and Quarantine Bureau
Oana-Ramona Lobont ; Department of Finance, West University of Timisoara


Puni tekst: engleski pdf 1.709 Kb

str. 2009-2027

preuzimanja: 515

citiraj


Sažetak

This paper aims to investigate whether the covered interest rate parity (C.I.P.) holds or not through examining the dynamic link between nominal interest rate differential (N.I.R.D.) and nominal exchange rate (N.E.R.) in China. With economic transitions and structural changes existing, we find that the C.I.P. condition using full-sample data does not always hold. Consequently, we apply a time-varying rolling-window approach to revisiting the dynamic causal relationship, and the results show that N.I.R.D. has both positive and negative impacts on N.E.R. in several sub-periods, and in turn, N.E.R. has the same effects on N.I.R.D. for China. Exchange regime reform, currency-specific market risk and capital control are considered in explaining the deviations in some subsample periods. Therefore, empirical results have important implications for distinguishing factors that bring about the C.I.P. deviations and further offers policy suggestions for the Chinese monetary authority

Ključne riječi

Interest rate differential; exchange rate; rolling window; bootstrap; time- varying causality

Hrčak ID:

228882

URI

https://hrcak.srce.hr/228882

Datum izdavanja:

22.1.2019.

Posjeta: 922 *