TY  - JOUR
AU  - Fukuda, Shin-ichi
TI  - Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21938
PY  - 2016
Y2  - January 2016
DO  - 10.3386/w21938
UR  - http://www.nber.org/papers/w21938
L1  - http://www.nber.org/papers/w21938.pdf
N1  - Author contact info:
Shin-ichi Fukuda
Faculty of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033, JAPAN
Fax: 81-3-5841-5521
E-Mail: sfukuda@e.u-tokyo.ac.jp
M1  - published as Shin-ichi Fukuda. "Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates," in Kosuke Aoki, Shin-ichi Fukuda, Takeo Hoshi, and Takashi Kano, organizers, "International Finance in the Global Markets" Elsevier, Journal of the Japanese and International Economies, volume 42 (2016)

M3  - presented at "TRIO Conference", December 16-17, 2015
AB  - In the post Lehman period, the interest rate of the US dollar became low on the forward contract because of“flight to quality” to the international currency. However, in the Euro crisis, that of the Sterling pound became equally low, while the other European currencies such as the Danish kroner increased its liquidity premium. By using secured rates, the following analysis examines why the Sterling pound and the Danish kroner showed asymmetric features in deviations from the covered interest parity (CIP) condition. The regression results suggest that there was a structural break in the determinants of the deviations across the European currencies in the two crises. Currency-specific money market risk was critical in explaining the deviations in the global financial crisis (GFC), while EU banks’ credit risk and market risk were useful in explaining the deviations in the Euro crisis. In particular, EU banks’ credit risk and market risk had asymmetric effect on the deviations. The asymmetry explains different features between the Sterling pound and the Danish kroner.
ER  -