Norges Bank

Working Paper

The Corporate Real Effects of CIP Deviations

Filippo Ippolito, Jose Luis Peydro, Artashes Karapetyan, Ragnar Juelsrud and Olav Syrstad
Working Paper


We show corporate real effects from Covered Interest Parity (CIP) deviations exploiting administrative data from Norway as well as CIP deviation shocks. Banks with access to U.S. money markets strongly increase USD global (short-term) funding in response to CIP deviations. This, in turn, leads to higher credit to non-financial  firms, with weaker economic effects as banks hoard part of the extra funding as central bank deposits. The higher credit is supply-driven, as we control for firm-time  fixed effects and we find higher credit volumes but lower loan interest rates for affected  firms (i.e., those with higher pre-shock funding from banks with access to US funds). Loan-level results translate into  firm-level bank debt and total debt results. However, corporate real effects are weaker. Despite strong effects on corporate sales (firm output), more affected firms (i.e., with higher credit availability) increase their fixed assets but it is completely driven by an increase in financial fixed assets, not through investment in real assets. Further, more affected firms pay out more dividends to shareholders. Overall, our evidence suggests limits of CIP deviations via banks into long-term real effects of corporations.

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ISSN 1502-8143 (online)

Published 1 February 2024 14:00
Published 1 February 2024 14:00