Abstract: | Capital Controls and Covered Interest Parity in the EU: Evidence from a Panel-Data Unit Root Test. - This paper examines whether the abolition of the remaining capital controls in the EU during 1990 has facilitated the achievement of onshore covered interest parity with respect to Germany. We test for unit roots in covered interest differentials. However, we employ the new methodology of pooling our data and performing a unit root test based on a panel data set. Our results suggest that the period characterized by the absence of capital controls has not facilitated the achievement of covered interest parity. Indeed, evidence in favour of covered interest parity is strongest for the period preceding 1990. |