Covered Interest Rate Parity on Latam Markets

• Autor(a) principal: Saito, Lucas Kenji
• Data de Publicação: 2022
• Idioma: eng
• Título da fonte: Biblioteca Digital de Teses e Dissertações do INSPER
• Texto Completo: https://repositorio.insper.edu.br/handle/11224/6511
• topic: Covered Interest Parity; Exchange Rates; Latin America; Paridade Coberta de Juros; Câmbio. Taxa de Juros; América Latina

This study analyses the deviations from Covered Interest Parity (CIP) in most developed markets in Latin America (Brazil, Chile, Colombia, and Mexico). Seeking for similarities between the countries’ basis behavior the correlation was not found. All the countries have high volatility on the basis, with Colombia statistically holding the CIP for a band and Brazil with a persistent high mean deviation. On the macro-financial determinants, broad Dollar strength shows relevance on the deviations, but the impact on each country differs. The local interest rate spread with the funding currency (USD) interest rate is the factor that affects all the countries similarly. Although both of these factors show relevance within other emerging and developed markets, not being exclusive to the region. The lack of correlation between the deviations and the risk factors not explaining the countries similarly may indicate that regional factors are less relevant, being idiosyncratic factors more important.