Cambridge SFX 2025: Understanding CIP Deviations in Emerging Markets | Role of Speculative Demand

Описание: In this presentation from inaugural Symposium on Foreign Exchange Markets, Lorena Keller explores the complex dynamics of Covered Interest Parity (CIP) deviations in emerging market currencies. Unlike advanced economies, CIP deviations in emerging markets are not only larger in magnitude but often behave in the opposite direction, creating unique challenges for monetary policy and corporate borrowing.

The talk highlights how global speculators—primarily hedge funds—drive these deviations through forward currency markets due to restrictions on short-term local currency investments. Local banks act as intermediaries, charging a premium for these transactions, which can significantly affect synthetic borrowing costs during economic downturns. Using high-resolution data from Peru and a panel of 20 emerging economies, the presentation validates model predictions, showing how speculative demand shapes CIP deviations and interacts with global risk aversion.

This video is essential for finance professionals, researchers, and students interested in FX markets, emerging economies, and the influence of speculative capital on currency dynamics. Gain insight into how theory aligns with real-world data and why understanding these mechanisms is crucial for policy and investment decisions.

0:00 – Introduction: Importance of CIP deviations in emerging markets
1:45 – Comparing emerging vs advanced economies
3:30 – The role of local banks and synthetic borrowing
6:00 – Forward currency markets and speculative demand
9:15 – Modelling CIP deviations: Supply and demand dynamics
12:45 – Data validation using Peru and 20 emerging markets
16:00 – Impact of global risk aversion on CIP deviations
18:30 – Key conclusions and implications for policy and investment

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