Destabilizing carry trades

Guillaume Plantin and Hyun Song Shin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: F10 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-10-20
New Economics Papers: this item is included in nep-ifn and nep-opm
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Citations: View citations in EconPapers (1)

Downloads: (external link)
http://eprints.lse.ac.uk/60959/ Open access version. (application/pdf)

Related works:
Working Paper: Destabilizing carry trades (2015)
Working Paper: Destabilizing carry trades (2015)
Working Paper: Destabilizing Carry Trades (2014)
Working Paper: Destabilizing carry trades (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:60959

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