Our speaker will be Christian Kubitza (ECB).

He will give a talk on "The Implications of CIP Deviations for International Capital Flows" (joint with Jean-David Sigaux and Quentin Vandeweyer).

Abstract: We study the implications of deviations from covered interest rate parity (CIP) for international capital flows using a novel dataset covering the universe of derivatives and securities holdings in the euro area. We document that euro-area investors’ holdings of USD bonds decrease following a widening in USD-EUR CIP deviation. Consistent with a simple dynamic model of currency risk hedging, we find that investors are significantly more responsive to CIP deviations when they need to roll over existing currency derivatives. CIP-driven shifts in bond demand significantly affect government bond prices. Our findings have important implications for understanding international capital flows and financial stability.

The talk will take place on August 19, 2024 at 12:00 pm in room D3.0.222.