Carry Trade and Negative Policy Rates in Switzerland: Low-lying fog or storm ?

Bruno Thiago Tomio and Guillaume Vallet ()
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Bruno Thiago Tomio: CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes
Guillaume Vallet: CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes

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Abstract: This article uses data from hedge funds to investigate the behavior of the Swiss franc carry trade in the period of negative interest rate policy in Switzerland. In an effort to disentangle the funding currency and safe haven effects embedded in the Swiss carry trade activity with four target currencies (U.S. dollar, euro, Japanese yen, and British pound), we estimate structural vector autoregressive models with financial variables. Along with evidence for the funding currency and safe haven effects, results also show that: (i) the uncovered interest rate parity is violated for the U.S. dollar, euro and Japanese yen models, (ii) hedge funds are able to move asset prices, and (iii) an increased systemic risk is linked to a higher Swiss franc carry trade activity.

Keywords: Carry trade; Negative interest rate policy; Market volatility; Swiss franc; SVAR model (search for similar items in EconPapers)
Date: 2021-10-28
New Economics Papers: this item is included in nep-cba, nep-dem and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03669561v1
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Published in 25th FMM (Forum for Macroeconomics and Macroeconomic Policies) conference "Macroeconomics of Socio-Ecological Transition", Hans-Böckler-Stiftung, Oct 2021, Berlin, Germany

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03669561

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