Alan T. MacArthur
University of California
NBER Working Papers and Publications
|July 1987||Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries|
with Jeffrey A. Frankel: w2309
Different approaches to quantifying the degree of capital mobility for a cross-section of currencies -- particularly saving-investment correlations and tests of real interest parity - have appeared to show a surprisingly low degree of financial market integration. We use a new data set, forward rate data for 24 countries, including many small industrialized countries and seven LDCs, to decompose the real interest differential into two parts: the covered interest differential, or political premium, and the real forward discount, or currency premium. The latter in turn can be decomposed into the exchange risk premium and expected real depreciation. We find a high degree of capital mobility across political boundaries for most of the 011 countries, plus Hong Kong and Singapore, for our sample...
Published: European Economic Review, Vol. 32, No. 5, pp. 1083-1118, (June 1988). citation courtesy of