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Destabilizing carry trades

Plantin, Guillaume, Song Shin, Hyun and plantin, (2014) Destabilizing carry trades. SRC Discussion Paper (No 17). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

We offer a model of currency carry trades in which carry traders earn positive excess returns if they successfully coordinate on supplying excessive capital to a target economy. The interest-rate differential between their funding currency and the target currency is their coordination 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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.systemicrisk.ac.uk/
Additional Information: © 2014 Systemic Risk Centre, The London School of Economics and Political Science
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 16 Feb 2015 15:27
Last Modified: 20 Feb 2019 03:50
Projects: ES/K002309/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60959

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