The Dollar, Bank Leverage, and Deviations from Covered Interest Parity
Hyun Song Shin
- American Economic Review: Insights (Forthcoming)
We document a triangular relationship in that a stronger dollar goes hand-in-hand with larger deviations from covered interest parity (CIP) and contractions of cross-border bank lending in dollars. We argue that underpinning the triangle is the role of the dollar as a key barometer of risk-taking capacity in global capital markets.
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