Destabilizing carry trades
We offer a model of currency carry trades in which carry traders earn positive excess returns if they successfully coordinate on supply- ing excessive capital to a target economy. The interest-rate differential between their funding currency and the target currency is their coor- dination device. We solve for a unique equilibrium that exhibits the classic pattern of the carry-trade recipient currency appreciating for extended periods, punctuated by sharp falls.
Year of publication: |
2014-06
|
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Authors: | Plantin, Guillaume ; Shin, Huyn |
Institutions: | Toulouse School of Economics (TSE) |
Saved in:
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