Commodity Trade and the Carry Trade: A Tale of Two Countries
Persistent interest rate differentials account for much of the currency carry trade profitability. "Commodity currencies" offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of internationa...
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| Veröffentlicht in: | The Journal of finance (New York) 2017-12, Vol.72 (6), p.2629-2684 |
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| container_title | The Journal of finance (New York) |
| container_volume | 72 |
| creator | READY, ROBERT ROUSSANOV, NIKOLAI WARD, COLIN |
| description | Persistent interest rate differentials account for much of the currency carry trade profitability. "Commodity currencies" offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods. In the model, domestic production insulates commodity-producing countries from global productivity shocks, forcing final-good producers to absorb them. Commodity-currency exchange rates and risk premia increase with productivity differentials and trade frictions. These predictions are strongly supported in the data. |
| doi_str_mv | 10.1111/jofi.12546 |
| format | Article |
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| identifier | ISSN: 0022-1082 |
| ispartof | The Journal of finance (New York), 2017-12, Vol.72 (6), p.2629-2684 |
| issn | 0022-1082 1540-6261 |
| language | eng |
| recordid | cdi_proquest_journals_1983910680 |
| source | Wiley-Blackwell Journals; JSTOR |
| subjects | Commodities Commodities trading Currency Economic models Equilibrium Foreign exchange rates Interest rates International trade Money Productivity Profitability |
| title | Commodity Trade and the Carry Trade: A Tale of Two Countries |
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