CAPITAL CONTROLS AND COVERED INTEREST PARITY IN THE EU - EVIDENCE FROM A PANEL-DATA UNIT-ROOT TEST

Capital Controls and Covered Interest Parity in the EU: Evidence from a Panel-Data Unit Root Test. - This paper examines whether the aboliti on of the remaining capital controls in the EU during 1990 has facilit ated the achievement of onshore covered interest parity with respect t o Germany. We test for unit roots in covered interest differentials. H owever, we employ the new methodology of pooling our data and performi ng a unit root test based on a panel data set. Our results suggest tha t the period characterized by the absence of capital controls has not facilitated the achievement of covered interest parity. Indeed, eviden ce in favour of covered interest parity is strongest for the period pr eceding 1990.