The Evidence and Impact of Financial Globalization

Chapter 29

Interest Rate Parity

R.M. Levich

New York University, New York, NY, USA

Outline

Introduction and Overview

Origins and Theory of IRP

Limits to Arbitrage and Factors Associated with Parity Deviations

Empirical Evidence on IRP from the Last 50 years

Early Empirical Studies

Refinements to the Traditional Model and Improved Data

Further Applications and Empirical Evidence on IRP

Empirical Evidence on IRP During the Global Financial Crisis

Conclusion and Cautionary Notes on Parity Deviations

Appendix

References

The interest rate parity (IRP) relationship plays a key role in global macroeconomic models and is considered a benchmark for perfect international capital mobility. In offshore capital markets, empirical studies confirm that deviations ...