Carry trades explain FX response to rate hikes – BIS bulletin
Value of funding currencies surges after surprise tightening as investors unwind positions, study shows
Carry trades play an important role in explaining how exchange rates respond to monetary policy decisions, research from the Bank for International Settlements shows.
In a bulletin published on May 6, Ryan Niladri Banerjee, Lena Boneva, Gabor Pinter and Vladyslav Sushko explore how currencies that fund leveraged carry trades exhibit significant volatility when central banks unexpectedly tighten policy.
In a carry trade, speculators such as hedge funds borrow in cheap currencies – such as the yen
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@centralbanking.com or view our subscription options here: www.centralbanking.com/subscriptions
You are currently unable to print this content. Please contact info@centralbanking.com to find out more.
You are currently unable to copy this content. Please contact info@centralbanking.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@centralbanking.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@centralbanking.com
More on Economics
Rising global imbalances will be difficult to smooth out – panel
BoE’s Alan Taylor says imbalances bring financial stability risks
Market highs do not reflect risks, says BoE’s Breeden
Deputy governor says risk of multiple shocks occurring at same time keeps her ‘awake at night’
Book notes: Money beyond borders, by Barry Eichengreen
Lessons from economic history indicate the dollar’s decline could result in a messy transition that spawns a global crisis
Lagarde calls for reform of IMF’s voting system
ECB president says multilateral institutions need to be ‘better aligned with what the world has become’
Lane says Blanchard’s Eurobond proposal is ‘feasible’
ECB’s chief economist calls for expanded supply of euro-denominated safe assets
Lagarde says fiscal response to energy shock must be targeted
Price caps and tax cuts must ‘preserve price signal’ or risk inflationary spiral, ECB president says
Firms slowest to adjust to Sarb’s new price target – paper
Memories of post-pandemic inflation surge linger, researchers say
Growing global imbalances risk ‘disorderly unwinding’ – panel
Imbalances caused by unsustainable growth models and industry policy, experts say