The carry trade in industrialized and emerging markets

The profitability of currency carry trades in and of itself is 'economic' evidence against the uncovered interest parity (UIP) condition. There is a wide variety of 'statistical' evidence against UIP. Yet the relationship between these two types of evidence and their implications...

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Autor principal: Burnside, Craig
Formato: Artículo
Lenguaje:eng
Publicado: Banco Central de Chile 2019
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Acceso en línea:https://hdl.handle.net/20.500.12580/3818
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Sumario:The profitability of currency carry trades in and of itself is 'economic' evidence against the uncovered interest parity (UIP) condition. There is a wide variety of 'statistical' evidence against UIP. Yet the relationship between these two types of evidence and their implications for time variation in risk premia is not fully understood. Furthermore most of the literature has focused on the currencies of industrialized economies. The failure of UIP in emerging market currencies and its implications for the risk premia of these currencies has received considerably less attention. In this paper I reconsider UIP the carry trade and the behavior of risk premia and draw comparisons between currencies in industrialized economies and those in emerging markets.