NDLI: Exchange Rates, Interest Rates and the Global Carry Trade

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Exchange Rates, Interest Rates and the Global Carry Trade

Content Provider	Scilit
Author	Evans, Martin D. D. Rime, Dagfinn
Copyright Year	2017
Description	Journal: SSRN Electronic Journal We empirically examine how the global carry trade affects the dynamics of spot exchange rates and interest rates across 13 countries from 2000, through the world financial crisis, until the end of 2011. Our model identifies the weekly carry trade position in each currency by matching data on forex trading flows with the predictions of a dynamic portfolio allocation problem that exploits the predictability in excess currency returns (deviations from uncovered interest parity). Using these carry positions produce two surprising results: First, in nine countries carry trades are an economically significant driver of interest rate differentials (vs. U.S. rates). Second, the carry trade only affects the dynamics of spot exchange rates insofar as it is contributes to total forex order flow; (i.e., flows generated by the carry trade and all other trading motives). These findings contradict the conventional view that sudden large movements in exchange rates are attributable to the carry trade. They suggest, instead, that the effects of the global carry trade are primarily concentrated in bond markets.
Related Links	https://norges-bank.brage.unit.no/norges-bank-xmlui/bitstream/11250/2495567/1/working_paper_14_17.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3057946
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3057946
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-09-06
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Exchange Rate Dynamics
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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