There is a large and rapidly growing literature examining the reasons that covered interest parity no longer holds. This paper is an excellent starting point – it traces the history of CIP deviations, then explains and tests a range of explanations. They find that factors driving CIP failure differ both across currency pairs and through time – which in their view is why other studies that focus their tests more narrowly sometimes come up with competing conclusions.
Cerutti, E. and Obstfeld, M. and Zhou, H V. (January 2019). IMF Working Paper 19/14.
