The covered interest rate parity (CIP) condition is a fundamental arbitrage relationship in international finance. In this chapter, we review its breakdown during the Global Financial Crisis and its continued failure in the subsequent decade. We review how to measure CIP deviations, discuss the drivers of CIP deviations, and the implications of CIP deviations for global financial markets.

More on this topic

BFI Working Paper·Jul 15, 2026

Supply and Demand with Market Heterogeneity

Ingvil Gaarder, Lancelot Henry de Frahan, Magne Mogstad, Alexander Torgovitsky, and Oscar Volpe
Topics: Financial Markets
BFI Working Paper·May 18, 2026

Sophisticated Borrowing Constraints and Macroeconomic Dynamics

Al-Mahdi Ebsim, Chen Lian, Yueran Ma, Pablo Ottonello, and Diego J. Perez
Topics: Financial Markets
BFI Working Paper·May 12, 2026

Diagnostic Expectations and the Macroeconomy

George M. Constantinides and Maurizio Montone
Topics: Financial Markets