Arbitraging covered interest rate parity deviations and bank lending Lorena Keller
By: Keller, Lorena
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Material type: 
ArticleSubject(s): INTERESES BANCARIOS | PRESTAMOS | PAISES EN DESARROLLO | TIPO DE CAMBIO
In:
The American Economic Review v. 114, n. 9, September 2024, p. 2633-2667.Summary: I propose and test a new channel through which covered interest rate parity (CIP) deviations can affect bank lending in emerging economies. I argue that when CIP deviations exist, banks attempt to arbitrage them. To do so, banks must borrow in a particular currency. When this currency is scarce, bank lending in the currency required to arbitrage decreases, while they use this currency in their arbitrage activities. I test this channel by exploiting differences in the abilities of Peruvian banks to arbitrage CIP deviations. I find evidence that supports the proposed channel.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 234/2024/9-1 (Browse shelf) | Available | OP 234/2024/9-1 |
Bibliografía.
I propose and test a new channel through which covered interest rate parity (CIP) deviations can affect bank lending in emerging economies. I argue that when CIP deviations exist, banks attempt to arbitrage them. To do so, banks must borrow in a particular currency. When this currency is scarce, bank lending in the currency required to arbitrage decreases, while they use this currency in their arbitrage activities. I test this channel by exploiting differences in the abilities of Peruvian banks to arbitrage CIP deviations. I find evidence that supports the proposed channel.
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