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Carry Trade and Systemic Risk : Why are FX Options so Cheap?

Caballero, Ricardo J. - 2013

In this paper we document first that, in contrast with their widely perceived excess returns, popular carry trade strategies yield low systemic-risk-adjusted returns. In particular, we show that carry trade returns are highly correlated with the return of a VIX rolldown strategy --i.e., the...

Persistent link: https://www.econbiz.de/10013089284

Global Imbalances and Financial Fragility

Caballero, Ricardo J. - 2010

behind this crisis is the large demand for riskless assets from the rest of the world. In this paper we present a model to … concern with capital flows is in their speculative nature, in the U.S. the risk in capital inflows derives from the opposite …

Persistent link: https://www.econbiz.de/10012757927

An Equilibrium Model of "Global Imbalances" and Low Interest Rates

Caballero, Ricardo J. - 2009

the world and, b) heterogeneity in these regions' capacity to generate financial assets from real investments. In …

Persistent link: https://www.econbiz.de/10012767437

On the Global Impact of Risk-Off Shocks and Policy-Put Frameworks

Caballero, Ricardo J. - 2019

Global risk-off shocks can be highly destabilizing for financial markets and, absent an adequate policy response, may trigger severe recessions. Policy responses were more complex for developed economies with very low interest rates after the Global Financial Crisis (GFC). We document, however,...

Persistent link: https://www.econbiz.de/10012867100

Global Imbalances and Policy Wars at the Zero Lower Bound

Caballero, Ricardo J. - 2015

This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous … capital markets and nominal rigidities. We establish four main results: (i) Liquidity traps spread to the rest of the world …

Persistent link: https://www.econbiz.de/10013013171

A "Vertical" Analysis of Crises and Intervention : Fear of Floating and Ex-Ante Problems

Caballero, Ricardo J.; Krishnamurthy, Arvind - 2021

Emerging economies are prone to crises triggered by external shocks. During these crises, should the central bank stabilize the currency or domestic interest rates? If the choice is outside the central bank's control, as in a currency board, are there good policy substitutes? We argue that these...

Persistent link: https://www.econbiz.de/10013219686

Contingent Reserves Management : An Applied Framework

Caballero, Ricardo J.; Panageas, Stavros - 2021

One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In...

Persistent link: https://www.econbiz.de/10013222654

Inflation Targeting and Sudden Stops

Caballero, Ricardo J.; Krishnamurthy, Arvind - 2021

Emerging economies experience sudden stops in capital inflows. As we have argued in Caballero and Krishnamurthy (2002), having access to monetary policy during these sudden stops is useful, but mostly for insurance' rather than for aggregate demand reasons. In this environment, a central bank...

Persistent link: https://www.econbiz.de/10013237236

Financial Crash, Commodity Prices and Global Imbalances

Caballero, Ricardo J.; Farhi, Emmanuel; Gourinchas, … - 2021

In this paper we argue that the persistent global imbalances, the subprime crisis, and the volatile oil and asset prices that followed it, are tightly interconnected. They all stem from a global environment where sound and liquid financial assets are in scarce supply

Persistent link: https://www.econbiz.de/10013243462

The "Other" Imbalance and the Financial Crisis

Caballero, Ricardo J. - 2010

the U.S. would experience a sudden stop of capital flows, which would unavoidably drag the world economy into a deep … instead that the root imbalance was of a different kind: The entire world had an insatiable demand for safe debt instruments … of exposing the economy to a systemic panic. This structural problem can be alleviated if governments around the world …

Persistent link: https://www.econbiz.de/10013149302