Commodity Trade and the Carry Trade: a Tale of Two Countries

Robert Ready, Nikolai Roussanov and Colin Ward

No 19371, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. "Commodity currencies'' tend to have high interest rates while low interest rate currencies belong to exporters of finished goods. This pattern arises in a complete-markets model with trade specialization and limited shipping capacity, whereby commodity-producing countries are insulated from global productivity shocks, which are absorbed by the final goods producers. Empirically, a commodity-based strategy explains a substantial portion of the carry-trade risk premia, and all of their pro-cyclical predictability with commodity prices and shipping costs, as predicted by the model.

JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-int and nep-opm
Note: AP EFG IFM ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published as ROBERT READY & NIKOLAI ROUSSANOV & COLIN WARD, 2017. "Commodity Trade and the Carry Trade: A Tale of Two Countries," The Journal of Finance, vol 72(6), pages 2629-2684.

Downloads: (external link)
http://www.nber.org/papers/w19371.pdf (application/pdf)

Related works:
Journal Article: Commodity Trade and the Carry Trade: A Tale of Two Countries (2017)
Working Paper: Commodity Trade and the Carry Trade: a Tale of Two Countries (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19371

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19371

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().