Carry trade in developing and developed countries: a Granger-causality analysis with the Toda-Yamamo to approach

Bruno Tomio

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Abstract: This paper explores empirically the relationship among speculative financial futures (carry trade), nominal exchange rates, and interest rates differentials in developing and developed countries, during the periods of quantitative easing, tapering and quantitative tightening based on the changes of policy interest rates in the United States (US). The public data supplied by the US Commodity Futures Trading Commission Large Trader Reporting Data is taken as a proxy for foreign exchange carry trade. With a time-series model for each country, we estimate the Granger causality using Vector Autoregressive (VAR) models as proposed by Toda and Yamamoto (1995). We investigate three developing countries (Brazil, Mexico, and Russia) and seven developed countries (Australia, Canada, Euro area countries, Japan, New Zealand, Switzerland, and the United Kingdom). Our findings give support to a better understanding of the relationship between foreign exchange activity and monetary policy.

Keywords: carry trade; foreign exchange market; interest rate differentials; Toda–Yamamoto causality (search for similar items in EconPapers)
Date: 2019-10-24
New Economics Papers: this item is included in nep-cis and nep-tra
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03131073v1
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Published in 23rd conference of the Forum for macroeconomics and macroeconomic policies "The Euro at 20 – Macroeconomic challenges", Macroeconomic policy institute, Oct 2019, Berlin, Germany. 12 p

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Related works:
Working Paper: Carry trade in developing and developed countries: a Granger causality analysis with the Toda-Yamamoto approach (2020)
Working Paper: Carry trade in developing and developed countries: a Granger-causality analysis with the Toda-Yamamo to approach (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03131073

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