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Title: |
Exchange Controls, Political Risk and the
Eurocurrency Market: New Evidence from Tests of Covered Interest Rate
Parity |
| Author: |
Cody, Brian J. |
| Author
Affiliation: |
Federal Reserve
Bank of Philadelphia |
| Source: |
International Economic Journal, Summer 1990, v. 4, no. 2, pp. 75-86 |
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Publication Date: |
Summer 1990 |
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Abstract: |
This study employs daily data to examine
the effects on Eurocurrency and onshore returns of the May 21, 1981
imposition of exchange controls by French President Mitterand. Prior to
this time, transaction costs explain the average onshore deviations from
covered parity; however, these averages ignore short-lived political
risk premia which emerged just before the imposition of controls. As
expected, there is no evidence of political risk on Eurocurrency
markets. Yet when exchange controls were in effect, premia in excess of
transaction costs surfaced on nonfranc Eurocurrency deposits at the time
of devaluations of the franc within the EMS. |
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