Destabilizing carry trades
Plantin, G. & Song Shin, H.
(2014).
Destabilizing carry trades.
(Systemic Risk Centre Discussion Papers 17).
Systemic Risk Centre, The London School of Economics and Political Science.
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.
| Item Type | Working paper |
|---|---|
| Copyright holders | © 2014 The Authors |
| Departments | LSE > Research Centres > Financial Markets Group > Systemic Risk Centre |
| Date Deposited | 16 Feb 2015 |
| URI | https://researchonline.lse.ac.uk/id/eprint/60959 |