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한국개발연구. Vol. 36, No. 2, May 2014, pp. 103-136

https://doi.org/10.23895/kdijep.2014.36.2.103

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Analysis on Recent Changes in the Covered Interest Rate Parity Condition

Jung Sung Kim; Kyu Ho Kang

Author & Article History

Manuscript .

Abstract

The covered interest rate parity condition (CIRP) has been widely used in open macroeconomic analysis, risk management, exchange rate forecasts, and so forth. Due to the recent global financial crises, there have been remarkable changes in the financial markets of the emerging markets. These changes possibly influenced the dynamics of the covered interest rate parity condition. In this paper, we investigate whether the CIRP dynamics has changed, and what is the nature of the regime changes. To do this, we propose and estimate multiple-state Markov regime switching models using a Bayesian MCMC method. Our estimation results indicate that the default risk or the deviation from the CIRP has been decreased after the crisis. It seems to be associated with the more active interaction between the short-term bond market and the short-term foreign exchange market than before. The tightened relation of these two financial markets is caused by the arbitrage transaction of foreign investors.

Keywords

마코프 국면전환모형(MarkovRegime Switching Model), 베이지안 계량분석(Bayesian Estimation), 외화자금시장(Foreign Currency Market), 단기 원화시장(Shortterm Money Market)

JEL Code

F31, F32, C53

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