Citation

Discussion Paper Details

Please find the details for DP8224 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Carry Trades, Monetary Policy and Speculative Dynamics

Author(s): Guillaume Plantin and Hyun Song Shin

Publication Date: February 2011

Keyword(s): currency crises, emerging market bubbles and speculation

Programme Area(s): International Macroeconomics

Abstract: We ask when currency carry trades are associated with destabilizing dynamics in the foreign exchange market, and investigate the role of monetary policy rules in setting of such dynamics. In a model where the exchange rate has a long-term fundamental anchor, we find that carry trades can be stabilizing or destabilizing at shorter horizons, depending on the propensity of capital inflows to overheat the recipient economy. In the destabilizing case, 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8224

Bibliographic Reference

Plantin, G and Shin, H. 2011. 'Carry Trades, Monetary Policy and Speculative Dynamics'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8224